Preamble

The House met at half-past Nine o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Land Reform (Scotland)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Clelland.]

Ms Roseanna Cunningham: I am delighted to discuss what most people in Scotland regard as an important issue. It was last debated in detail during an Adjournment debate that was secured by my hon. Friend the Member for Banff and Buchan (Mr. Salmond) in November 1996—some 17 months ago—and which took place in different circumstances. The debate has moved on, and I hope that we shall reflect that movement today.
I wrote to the Secretary of State for Scotland on Monday to outline the key areas that I shall discuss, and I hope that that courtesy will enable the Minister to respond positively and constructively. I believe that there is a cross-party consensus: although that can be used in Scotland more as a battering ram than anything else, it is genuine on this issue, and not simply rhetoric. It is the duty of hon. Members of all parties to try to move that consensus forward. I shall make a central proposition in the debate. That will raise wry smiles, but I shall bear with them. I hope that party spokespeople, including the spokesperson for the Conservative party, will respond to the initiative.
The Scottish National party has a well-developed land policy based on two years of wide-ranging consultation by the Scottish Land Commission. The Government are consulting on land reform through their land reform policy unit, and I understand that they have discussed with members of the commission the detail of its report. The other parties have their own ideas, and may have taken their own initiatives.
Anyone who listened to the debate in 1996 will know, however, that there are common threads in the parties' approaches. We appear to agree about the abolition of feudal tenure, and there is consensus on issues ranging from access to the extension of crofting tenure, so there is the basis for agreement on the core of a far-reaching land reform Bill for the first Session of the Scottish Parliament.
I propose that the parties join civic bodies in Scotland and other identified land experts to create a land convention for Scotland, which would work with the Scottish Office in the review of evidence gathered in its consultation exercise and move that work forward by producing a draft land reform Bill—before the new Scottish Parliament meets—which all parties would be able to support, and which could be the Parliament's first Bill.
Land reform and home rule have long been intertwined in the Scottish psyche. Since the days of the Crofters party in the House in the 1880s and 1890s, the prospect of land reform through a Scottish Parliament has been a key motivation for millions of Scots, who have had little hope for action in Westminster. We are part of an historic process, and we should ensure that the goal of land reform is delivered as smoothly and as quickly as possible in the new Parliament.
In the past week or two, I have talked about the high expectations of the Scottish Parliament in respect of land reform. To fail to deliver in the face of those expectations would be seen as a failure of the Scottish Parliament. None of us here wants the Scottish people to feel that the Parliament is not delivering in the way that it should.
The details of the proposal can be worked out later, but if we use the Scottish Office's land reform policy unit as advisers, or as a secretariat, use its drafting expertise, and tie that in with the ideas and inventiveness of all parties and from outside the political parties, we can produce a Bill that would be in place by 2000. That would be a fitting Bill for Scotland for 2000.
I urge the Minister to agree to meet me and representatives of the Liberal Democrats and Conservatives in the near future, perhaps next week, to discuss the practicalities of such an initiative. I hope that he and the other spokespeople here today will respond positively to the idea.
I should tell the Government that there can be change by reaching a consensus with the Opposition … the Opposition would be quite happy to co-operate with their proposals—or with any Government's proposals—on the issue … The Opposition are ready, but we are waiting to hear whether the Government are ready."—[Official Report, 6 November 1996: Vol. 284, c. 1171.]
Those are not my words, but those of the hon. Member for Dumbarton (Mr. McFall) in the November 1996 Adjournment debate. I hope that his Front-Bench colleague will show today the same spirit of consensus and co-operation that was shown before the general election.

Dr. Norman A. Godman: The hon. Lady will have noticed that there are few Members present today with Scottish landowning interests; there would have been a few more in 1996. Some changes could take place before her grand reform Bill, such as access to our hills for walkers and others and access to waters, which should not be owned by riparian landowners.

Ms Cunningham: The hon. Gentleman is right. I shall comment later about what could move ahead now, and what will probably remain to be tackled after the Scottish Parliament meets. This Parliament has not in the past shown itself capable of reacting quickly to the land reform issues that are so important in Scotland. With some 12, 13 or 14 months to go before the elections to the Scottish Parliament, I guess that it is unlikely that time will be found, although I would be happy to be wrong.
My remarks take account of the fact that some things could be done now and that some things are better left. I should add that I have a lot to get through, so I shall restrict interventions to allow others who wish to make substantive comments to do so.
I have two key themes, as suggested by the intervention of the hon. Member for Greenock and Inverclyde (Dr. Godman). First, there is what the Scottish Parliament


can and should do; secondly, there is what we can do now to tackle some of the injustices of Scotland's landholding system. Of necessity, this cannot be an exhaustive tour of the entire land set-up in Scotland. I will no doubt miss some favoured points of other hon. Members. I look forward to hearing about them.
Earlier this week, I published a summary of the SNP's land reform agenda for the Scottish Parliament. It set out our key aims and ambitions for a wide-ranging reform that has access at its core: access to the land for work, for homes and for recreation. Work and homes are often forgotten, because people tend to think of access only in terms of recreation.
The SNP seeks a people's land reform for Scotland. That means information, management, development, access and ultimate ownership of the land by and for the people of Scotland. Land reform must go beyond mere technical tinkering with the basic land law in Scotland. Lawyers tend to get excited by technical changes, but I am one lawyer who does not get excited by the technicalities that so obsess many of my legal colleagues. There must be more than that to land reform in Scotland.
The SNP regards the abolition of the feudal system as the first priority in creating a new land agenda. That appears to enjoy wide agreement in Scotland. Our guiding principle will be to ensure that one group of individuals, the feudal superiors, cannot unjustly interfere in another's free enjoyment of his or her land or property. Ultimate title to the land will rest with the people of Scotland as a whole.
The Scottish Law Commission is working on the details and implications of such a move, but our guiding principle must be that a feudal relationship between superior and vassal is not the best way to ensure that the obligations and responsibilities incumbent on every landowner are enforced. Such a relationship is a singularly strange phenomenon with which to move into the 21st century.
On rural areas, the SNP envisages some of the responsibilities being regulated by communities. We propose that local communities should have a central role in the development of land use strategies for their areas, and that elected locality land councils, working in liaison with a rural affairs Ministry, should draw up local land plans as the basis for sustainable development in their areas.
The introduction of those bodies will be linked to an overhaul of the structure of agencies and grants in Scotland, so that the money available can be spent more effectively, and be targeted at community supported, sustainable projects. Such a far-reaching reform cannot be introduced overnight, and we imagine a phased introduction of such bodies and a gradual extension of their powers and responsibilities. Again, at the heart lies the guiding principle of involvement of communities in the land and in the areas where they live.
The locality land councils' work should be aided by the development of a comprehensive, locally accessible land information system for Scotland. The excessive secrecy surrounding the ownership of land and the financial support available to landed estates is a major concern that must be tackled in any reform package.
It cannot be right that estates in our country receive fiscal advantages as a result of access agreements while the nature of the packages and the scope of the access are

never made clear. Our land information system for Scotland will go beyond the existing land register, to provide Scots with a comprehensive land database, and easy, local access to information vital to the process of redeveloping and rejuvenating their local land resources.
There have been some extreme estimates of the cost of such a project. I have seen figures as high as £300 million from some Government sources. That may be the cost of starting such a database from scratch, but bodies such as the Royal Institution of Chartered Surveyors already have a framework for such a system. Much of the information is already held by university departments and bodies such as the Macauley Land Use Research Institute. The Government's role should be to co-ordinate the gathering of the information we already have, and to prime the pump with the limited additional resources that would be required.
The database would include details of the access rights and recreational restrictions in place in any part of the country. As part of its commitment to access for the people to the land of Scotland, the SNP will define in law a responsible right to roam, backed by a legally enforceable countryside code. I wish that we had not got to the state where legislation was required. but some years ago we reluctantly concluded that it was, and that we could no longer rely on the traditional attitude to access to the land in Scotland.
We intend that the local land councils should play a role in the promotion of responsible access. In especially popular areas, they would employ rangers to educate people about the land and the environment, and enforce the good behaviour rules that will be a central part of making such a policy work. That already happens in parts of the United States of America, and we should draw best practice from such models elsewhere in the world.
The councils would also have the power temporarily to close off certain routes or glens for reasons such as seasonal farming conditions such as lambing and planting of crops, or specific environmental concerns. Those are necessary protections that must be built into any right of access.
Those are some of the key elements of the SNP package, but behind them lie core principles. The Scottish Land Commission report highlights some of the home truths about land in Scotland, and identifies the key fact that who owns the land is less important than how they use it. The SNP proposals would encourage people back to the land, and, although it cannot be achieved overnight, reduce the concentration of land in the hands of so few estates in the longer term. That can be achieved without restrictions on land ownership based on nationality.
We shall require landowners, whether individual or corporate, to have a resident representative who can be held responsible for the management of the land. A variety of fiscal incentives and sanctions would be employed to promote best land practice among all land users. We do not believe that companies are inherently worse landowners than individuals, but, where difficulties arise, we might consider going further, by requiring the creation of an authorised company official to liaise with local communities on the use to which land is put.
The same mechanism would also deal with absenteeism, which is not precisely the same as ownership by foreign nationals. A legally and financially responsible representative in the area could facilitate the review and


regulation of the land's use, and remove some of the criticism and controversy surrounding absentee ownership.
Those are things that the Scottish Parliament can and should do, but it cannot achieve certain elements of our package. I shall speak only briefly about the position of the Crown Estate Commissioners, because the matter can be addressed in the debate on the Scotland Bill next Wednesday. However, it is clear that, under the Scotland Bill as it stands, the Parliament will not have even the powers over the Crown Estate Commissioners that the Secretary of State currently has.
In addition, although the Parliament can legislate generally for the land held by the Crown Estate, it will not be able to transfer to other bodies its rights over the foreshore, sea bed, mineral exploitation or even salmon. Such resources could and should be transferred to local communities, so that they can promote their own developments, but, unfortunately, that will not be possible.
In the debate on what became the Transfer of Crofting Estates (Scotland) Act 1997, the hon. Member for Cunninghame, North (Mr. Wilson), now a Minister, made my point for me. Talking about crofters, he said:
Although they have grazing rights on the land, they do not hold sporting or mineral rights and they do not have the ownership of the rivers that flow through that land".[Official Report, 18 March 1997; Vol. 292, c. 732.]
That is nonsense, and has always meant that the communities that were given security of tenure under the Crofters' Holdings (Scotland) Act 1886 were never given the potential wealth that went with that tenure. People have been allowed to remain on the land on a marginal basis, but have never had the opportunity to develop the full economic potential of their communities.
Under the Scotland Bill, such a reform will not be wholly possible with a Scottish Parliament, as salmon rights, gold rights and rights over the foreshore cannot be extended as the hon. Member for Cunninghame, North wished last year. I, too, want the people of Scotland to develop the full economic potential of their communities, and it is testament to the existence of cross-party consensus that I can find common ground with the hon. Gentleman on that matter.
Unfortunately, the Scotland Bill tightly restricts the Scottish Parliament's ability to deliver such a laudable aim.
Those are matters for the future, but there are certain steps that the Government could and should take today to begin the process of real land reform in Scotland. I have already spoken of the proposal for a Scottish land convention, and I look forward to hearing a positive response to that. However, as I pointed out in the November 1996 debate, there are measures that could be adopted tomorrow to tackle some of the loopholes that are manipulated to such effect by people like Mr. Brian Hamilton, the "raider of the lost titles", and prevent his activities from being so effective—effective, at least, as far as he is concerned—in Aberdeenshire and Lanarkshire, to name but two areas.
Hon. Members will remember the impact of casualty clauses on the villagers of Boghead, and, last year, various hon. Members pointed out a way forward that did not require the Scottish Law Commission report. It is my understanding that the Feudal Casualties (Scotland) Act 1914 abolished feudal casualties, but not the leasehold

casualties that were effective in the Boghead case. In the opinion of most experts, that was an oversight, which could now be corrected, given that the principle behind removing those casualties is not in questions.
An act of sederunt passed by the Lord President of the Court of Session amending the legislation could prevent the likes of Mr. Brian Hamilton from enforcing his right to payment of casualties. Last year, the Conservative Government and the Scottish Office said that the Lord President was concerned about the vires of adopting such a course of action, but I am sure that hon. Members would offer him support if he were to do it. I hope that the Minister will address that problem, which remains with us more than a year after coming so dramatically to light.
Those may be minor points, but we could act immediately to close a gap in the law that can be used to hurt constituents of any Scottish Member of Parliament. Taking such action would clearly establish our intention to grasp the thistle of land reform.
Similarly, the Government could today announce a review of the current structure of quangos in Scotland, which means that farmers and landowners seeking financial assistance or wanting to develop their land can be forced to deal with more than 20 public bodies or agencies. Development in rural Scotland is currently constrained by the presence and activities of a web of overlapping agencies; not only is that ridiculously inefficient—it is an unnecessary barrier to initiative.
If anyone seeks to question the cost of land reform, I would direct them to look at the cost of the current structure of bodies regulating rural Scotland. This is certainly one area in which we need a bonfire of the quangos, and I urge the Government to begin today a review of the role of quangos.
I conclude by repeating some of the questions that I put to the Secretary of State earlier this week. I hope that the Minister will give answers to at least some of them in his reply.
On finance, I understand that Lord Sewel has said that land reform will have to be a cost-neutral exercise. Does that mean that the Government have ruled out making available any additional resources for land reform; and would that rule out the redirection of resources from a reorganisation of the quango system, or from the Crown Estate Commissioners? On access, are the Government and the Labour party both in favour of a responsible right to roam in Scotland? I believe that the answer to that is yes, but I should like clarification of the position.
In written questions, I have asked the Government about the possibility of early completion of the computerisation of the land register. Has such a step been categorically ruled out? Do the Government envisage the land register eventually extending beyond land titles, to include the full range of information about the geography and agricultural and mineral uses of and access to the land?
There have been some interesting and useful initiatives by, among others, Highland council on the question of community ownership of land. Do the Government envisage community involvement extending beyond isolated estates, to include some community monitoring or regulation of land use, or the development of community land use strategies and management plans? Does the Minister envisage current crofting legislation being extended beyond the existing crofting counties,


and opened up to encourage new entrants to that environmentally friendly and sustainable form of landholding?
The Government have said little about the detail of their land reform proposals. From discussions with groups throughout Scotland, I am aware of a genuine fear that those proposals may not go much beyond tinkering with the feudal system, and shaking up conveyancing and property law. That would not be considered sufficient.
In 1996, the hon. Member for Western Isles (Mr. Macdonald), now the Under-Secretary of State for Scotland, called for
a specialised land commission or land use council covering the whole of the highlands and islands, which would have powers to veto the proposed purchase of any estate which did not conform to the environmental and economic criteria set down by the land commission. Every prospective purchaser of a large highland estate should be obliged to carry out an environmental and a developmental audit, and the purchase should be allowed to proceed only if those audits were passed. Any subsequent failure to conform to the terms of those audits should result in the purchaser having to relinquish the title and sell it on to another person or body able to fulfil the terms of the audit."—[Official Report, 6 November 1996; Vol. 284, c. 1164.]

Mr. Tam Dalyell: I do not ask this in a hostile spirit, but it would be valuable to know with which groups the hon. Lady has discussed the matter. She referred to having discussed it with groups throughout Scotland; which groups did she have in mind?

Ms Cunningham: The land use commission, which was in operation for some 18 months, toured the length and breadth of Scotland, issued invitations, and took evidence from a huge number of organisations and individuals throughout Scotland—from members of the Scottish Landowners Federation to members of the various radical reform groups, and from notable individuals whose names the hon. Gentleman probably knows well, such as Andy Wightman, who are deeply involved in the issue of land reform in Scotland.
The commission spent 18 months or so in detailed discussion with a variety of groups. Over a number of years, I have frequently met individuals and representatives of many of those groups; I shall meet representatives of the Scottish Landowners Federation again soon. The hon. Member for Linlithgow (Mr. Dalyell) need not be afraid that these proposals have been dreamed up out of nowhere; they have appeared after a long process of wide consultation.
I was extensively quoting ideas that the current Under-Secretary of State, the hon. Member for Western Isles, has obviously had in his head for some time. His hon. Friend the Minister of State, the hon. Member for Cunninghame, North, has said:
Once the principle is established that communities can buy their land on a communal basis from the landowner—presumably at 15 times the rental value—no legitimate argument separates publicly owned from privately owned crofting land."—[Official Report, 18 March 1997; Vol. 292, c. 740.]
If the Under-Secretary still holds to the proposals that he advanced in November 1996, is he aware whether his hon. Friend still holds to the proposals that he advanced in March 1997? If so, when may we expect to see some of the details?
These ideas can and should be discussed fully and sensibly. A land convention is the ideal forum for such a debate, and would be the perfect vehicle for transferring all our hopes and ambitions for the land of Scotland into reality, in a first-class Bill for the new Scottish Parliament.

Mr. John Home Robertson: First, I declare an interest as an owner of some land in the Borders. I congratulate the hon. Member for Perth (Ms Cunningham) on raising an important issue.
We should all take a greater interest in land policy in Scotland, not least because there is a lot of land in Scotland—30,000 square miles for a population of just 5 million people. Whereas in England there is just three quarters of an acre for every citizen, we have 4 acres for every Scot. Given the density of population in central Scotland, that means that vast tracts of the nation of Scotland are very sparsely populated—although I confess that, even on that calculation, I have more than my fair share.
With that sparsity of population on land with very special environmental and economic qualities, we might be expected to give a high priority to land policy, but I fear that the issue has been sidelined for decades. We must be the last nation on earth that still has a feudal system of land tenure—whereupon I must declare another interest, as an hereditary feudal superior. I hope to have an opportunity to vote myself and other feudal superiors out of that anachronistic office once and for all, and the sooner the better.
That is not the only antiquity that we have in Scotland, as the Register of Sasines, started in the 17th century, is still partially with us, being replaced only fairly slowly with a less impenetrable public register of who owns Scotland.
The use of land in Scotland is determined almost entirely by private owners and occupiers and various unaccountable bodies, such as the Crown Estate Commissioners, which the hon. Member for Perth mentioned, with only limited influence from local authorities, from the Forestry Commission and various public agencies. Meanwhile, the traditional principle of reasonable public access to the open countryside is being challenged by what I describe as new age landlords, both Scots and people from outside Scotland.
The Westminster Parliament, especially the House of Lords, has been a massive institutional barrier to land reform in Scotland. That must be an area where the new Scottish Parliament will have the power and motivation to grasp a deeply rooted establishment nettle. I whole-heartedly welcome the important initiative taken by the Labour Government in establishing the Scottish land reform policy group, and publishing a consultation document on the key issues that the hon. Member for Perth has mentioned.
I have mentioned the Scottish feudal system. That is a superficially quaint arrangement whereby people like me, who happen to be descended from landowning families, can exercise or sell the rights to collect feu duties. That is no big deal, because not much money is involved, and in any case there is a statutory right to redeem the duties.
A far bigger problem is that, in some cases, feudal superiors can still take decisions about changes of use or construction on people's property, which may have been


bought many years or generations ago. That system might have had some merit as a 19th-century version of planning controls, but now that we have elected local planning authorities to do the job, there is no need to leave any residual powers to the whim of obscure feudal superiors, be they eccentric aristocrats or even more eccentric Labour Members of Parliament.
That is not the whole story. Feudal documentation gives rise to much unnecessary and costly work for lawyers, which costs affected citizens quite dearly. Worse, it can be possible for unscrupulous operators, like Mr. Brian Hamilton, the notorious raider of lost titles whom the hon. Member for Perth mentioned, to exploit residual feudal powers at the expense of unsuspecting householders. I submit that the whole feudal system, including the associated real burdens on land, should be abolished as soon as possible.
The hon. Member for Perth also mentioned pedestrian access to the open countryside. It is worth pointing out that the Trespass (Scotland) Act 1865 is a limited statutory provision, which applies only to encampments and to the lighting of fires near public roads.
Until recently, there has been a generally accepted right to roam in open countryside in Scotland, subject to a clearly understood duty to respect the privacy of people's homes, and to respect property and agricultural and sporting activities on the land. That system has worked, and in many cases still works, because people exercising the right to roam are reasonable, and because most landowners probably still exercise similar common sense.
Sadly, however, we are witnessing an increasing number of examples of what I have described as new age landowners in Scotland, some of whom—but by no means all—come from outside Scotland, who are erecting obstructions, locking gates and putting up "keep out" signs. I understand that they have been advised by lawyers that ordinary walkers, be they tourists or local residents, would find it prohibitively complicated and expensive to challenge such obstructions in the courts, so legitimate access is being obstructed.
There is another side to the story, which must be acknowledged, because both parties have rights. In some areas, the right to access is being abused by people who leave litter or vandalise property, and people who take horses, mountain bikes or even four-wheel-drive vehicles on to unsuitable routes. I submit, therefore, that we need fresh legislation to restore a reasonable right to roam in open countryside and on traditional rights of way, subject to proper safeguards. There should be no need for public bodies such as Scottish Natural Heritage to pay landowners public funds for such rights, except perhaps to contribute to the costs of bridges, car parks and so on.
I should like to say a great deal more on issues such as the need for better protection of public access to angling on Scottish rivers. I welcome the announcement that Lord Sewel made earlier this week about the Tay and the Tweed protection orders. I should like to speak about other aspects of land reform, such as community-based land ownership, which the hon. Member for Perth mentioned, and about the Crown Estate Commissioners and the need for land for affordable rented housing, especially in rural areas. We might also speak about the excellent new controls that the Labour Government have instituted on opencast mining. However, this is a short debate, so I conclude with some brief comments on the tenure of agricultural land.
I am well aware that farmers are having a very difficult time at present—and that should not be taken as a criticism of the Minister of Agriculture by his parliamentary private secretary. The BSE crisis is costing the taxpayer dearly; and in various ways, including the ban on beef exports, it has had a disastrous effect on the market for red meat. At the same time, farming is facing the certainty of major changes to the common agricultural policy; so these are indeed difficult times for rural Scotland.
Beyond all that, Scottish agriculture has the potential for a great future; we can produce the best cattle, sheep, potatoes, cereals, vegetables, berries and many other products in the world. But if we are to take full advantage of our potential, we must reform our land tenure system, and create proper career opportunities for new entrants to farming. At present, the only ways into farming are by succession, by marriage or by winning the lottery. My wife is probably as good a farmer as any other in Scotland, but the only way she could get access to land was by marrying me. Many people would regard that as rather a drastic step to take.
I suggest that the new Scottish Parliament should consider amendments to the legislation governing land ownership and tenure, to create opportunities and security for people who want to enter farming. For that to work, it is necessary to find ways of encouraging people to move out of the industry at the end of their careers. I do not accept the Scottish Landowners Federation line that all is well—that we should trust the free market, controlled by today's vested interests, to secure a bright new future for rural Scotland. The empty glens of the highlands are an awful reminder of what can go wrong. There is a need for public policy in this area.
This is neither the time nor the place to provide answers to the Scottish land question, but the Labour party certainly understands that question. I look forward to the day, not long now, when the Scottish Parliament will have the power and the commitment to provide some radical answers.

Mrs. Ray Michie: I congratulate the hon. Member for Perth (Ms Cunningham) on securing a debate on a subject that has often generated more heat than light. I suspect that Scotland is unique in the western world in having inherited a system of feudal land ownership which owes its origins to political and social systems designed to exercise power way back in the 11th century. Those systems have survived for 900 years; for 300 of them, Scotland has had no legislature that would have enabled it to undertake, develop and implement programmes of land reform similar to those achieved in many European countries.
Andy Wightman, who wrote the excellent book "Who Owns Scotland?", puts it rather neatly:
Land ownership is a property system which in Scotland, under Scots law, ensures that every square inch of land and inland water, together with the surrounding coastal waters and sea bed, the ground down to the centre of the earth and up to the sky above, is legally owned by somebody.
He includes an excellent little diagram in the shape of a pyramid: God is at the top, under God is the Crown, the paramount superior; under the Crown are the superiors; under the superiors are the vassals; and under the vassals


are the tenants—the very words are archaic and anachronistic. They suggest that we have been stuck in a time warp.
I welcome the Government's land reform policy group and the document identifying the problems. It is useful and long overdue. I am sure that today's debate will make its own contribution to the consultation process. It is right that the Scottish Parliament should regard land reform as a high priority.
I want to go over the history, so as to explain it to some who may not understand why so much bitterness, anger and sorrow surround the question of land ownership, particularly in the highlands and islands—and I speak as a highlander. Unfortunately, the anger remains today. The infamous clearances that took place between 1785 and 1850 are not forgotten—despite a deliberate policy not to teach Scottish history in our schools, and to stamp out the Gaelic language. The clearances are not forgotten, because their story has been passed down from generation to generation via the oral tradition, music, song and poetry.
My father writes in his book:
Returning home to the Strath of Kildonan with 12 grapeshot wounds in his body after the battle of Waterloo, my great-great-grandfather reached Glasgow. He was told he need go no further north. His people had been evicted and burned out of their crofts, along with the rest of the Bannermans of Kildonan.
I welcome the efforts by the Scottish Landowners Federation to change its image—it is even discussing a change of name. I hope that that shows that the federation wants to co-operate in any land reform that takes place. I counsel it against offering apologies—apologies are becoming two a penny these days. It is more important that the body should co-operate and make reparation for what has been done in the past.
What is to be done? First, we need to find out who owns Scotland by completing the land register, so that we have a comprehensive, accurate and publicly available guide to the names of properties and the names of their owners—especially when the latter is a company registered in Liechtenstein or the Cayman islands. Then we need to find out the acreage and the exact boundaries of each property. The Minister will know that the latter are extremely difficult to establish.
The owners are not all private landlords: the Scottish Office, the Ministry of Defence, the Forestry Commission and the Crown Estates all own land in Scotland. Then there are the non-profit-making owners, such as the National Trust, and the conservation bodies. It is reckoned that, by 2010, the conservation bodies will own 10 per cent. of Scotland.
It is sometimes argued that it is not who owns the land that matters but how it is managed—a mantra oft repeated by those who do not want change. Of course management and land use matter, but so does ownership—because that is where the power lies. There is a great deal of land speculation in Scotland. In Norway and Denmark, a legal framework has developed to support an independent, owner—occupied pattern of land ownership, and land sales are regulated. In New Zealand, overseas interests are prohibited from purchasing certain categories of land.
We must abolish the feudal system, and try, as far as possible, to develop community ownership and trusts, with help from bodies such as Highlands and Islands

Enterprise. The Assynt Crofters Trust is the great modern example of what can be done. It has more than 100 members, so, at a stroke, 100 more people have a stake in the land.
Although greatly diminished, agriculture is still very important to Scotland. Tenants should be given the right to buy on the right terms; at the same time, we should introduce more flexible tenancy agreements. Crofting is a proven method of retaining populations in areas that would otherwise probably now be empty.
We need to look, too, at compulsory purchase powers. 1 am not talking about powers to take over great tracts of land, but these powers can and should be used—the Highlands and Islands development board never really used them—to assist local community development in cases of obstruction by landlords or conservation bodies.
The Scottish Parliament should set up a land commission to oversee ownership and use. It may also want to consider land value taxation or site value rating, but I would not be in favour of that if the money were to come down to the Treasury in London. If it went to the Scottish Parliament, we should certainly consider that. We need a well balanced mixture, with many more people involved. The subject is huge, but, with good will and co-operation, it can pull Scotland into the 21st century.
On the hon. Lady's invitation to join a land convention, she knows that, as Liberal Democrats, we are always willing to speak to anyone and everyone, if that helps to promote legislation in the Scottish Parliament. Our idea was that the Parliament should set up a powerful pre-legislative committee that would pull in people from all the land interests and base its work on the tremendous amount that has already been done. I welcome any suggestion that would support that.
The Labour party and the nationalists would have to stop their recent spats. I deplore the derogatory remarks that have been made. We may not like our fellow Scots, but we should not make derogatory remarks about them.
[Interruption.] The Liberals do not do so to the same extent, and they do not use the words that were reported in the newspapers recently. As a Scot, I do not like it.
It is good that the Scottish nationalists have seen the light, and saw how well the Scottish Constitutional Convention worked. Perhaps they are proposing something similar. We would be very interested in such a proposal.

Mr. David Stewart: I thank the hon. Member for Perth (Ms Cunningham) for her initiative in getting the debate off the ground. She has a long track record in radical land use. I congratulate her again on initiating this Adjournment debate.
I represent the largest Labour constituency in the United Kingdom—a seat that goes from the Atlantic to the North sea. Looking back in history in my seat, I am well aware of the importance of land use. For example, more than 100 years ago, Fraser MacIntosh, a radical Highland Land League Member of Parliament, was elected for my constituency. He was instrumental in agitating for the Crofters Holdings (Scotland) Act 1886, which gives security of tenure to crofters to this day.
Earlier speakers have commented on some excellent practices in community land use—for example, the Assynt crofters, the Stornoway trust and, in my


constituency, the islanders of Eigg, who recently conducted a community buy-out involving Highland council. I congratulate the islanders. I am going to Eigg in a couple of weeks with the Scottish Select Committee so that members of the Committee can see for themselves excellent examples of community land use.
Ownership of land in Scotland is the most concentrated in the whole of Europe: 60 per cent. of land in Scotland is owned by just 1,500 people. It is time that we had a major spring clean through land reform. I welcome the setting up of the land reform policy group by my right hon. Friend the Secretary of State for Scotland. That wide-ranging consultation procedure finishes in the next few days, and has been widely welcomed.
Dr. Jim Hunter, a world-renowned historian who is acknowledged as one of the premier champions of land reform, wrote in The Scotsman yesterday:
Within weeks of Labour's election victory, Highlands and Islands Enterprise was asked to set up a community land unit to facilitate innovative approaches to the ownership and control of Scotland's most basic resource.
Four months later, Skye and Lochalsh Enterprise bought the 4,500 acre Orbost estate to establish a new community where last century's landlords cleared the inhabitants.
Land reform was never going to be easy, but the Labour Government is clearly committed to making it happen.
There are four main aspects that we must touch on, which have been acknowledged by earlier speakers: the elimination of feudalism in land use—an end to feudal superiors and vassals; the creation of new crofting land, for which there is great demand; a provision for farm tenants who have security of tenure under the Agricultural Holdings Act 1949 to have an entitlement to buy the land; and conditional and legally enforceable land use codes where there is large-scale purchase of land, irrespective of the nationality of the purchaser,.
I shall cite an example from my constituency—the 17,000 acre Knoydart estate, which was purchased by two company directors a few months ago. The two directors are currently facing disqualification as directors, following referral by the Department of Trade and Industry after the collapse of not one, but two, major companies. One of them had debts of £100 million. Those are the sort of people who are running that estate, where 70 people live and work. I am extremely worried, especially as the Serious Fraud Office is also investigating the directors' behaviour.
The Knoydart foundation, which is made up of local people who are trying their best to promote sustainable development in that isolated peninsula, can no longer do that because of the ownership of the estate. That is an example of economic and social feudalism, which is outdated as we approach the new millennium.
I welcome the debate and the land reform policy group. Land reform must be seen as part of integrated rural development—rural revival. I would also welcome—my hon. Friend the Minister may wish to comment on this—a community land purchase fund by grant or loan, to mirror the 1945 Labour Government's land memorial fund. Few pieces of legislation would better mark the new Scottish Parliament. I look forward to the Land Reform (Scotland) Act 2001.

Mr. Alan Clark: I declare a partial interest to the House, in that I am a trustee of the family trust settlements in Sutherland. I remind the House that we are not absentees. There are members of my family who are always there. As to my own credentials to speak on the topic within the Scottish nationalist ethic, every male forebear of mine has been born, and all—with the exception of my father—have been buried, in Scotland since 1725.
I caution the House against the received notion that all landowners are wicked and must be sent to the guillotine. That is entirely at variance with the broadly sensible view that feudalism is archaic and should be dispensed with, that crofting communities should be encouraged, and that, in cases where the rights of landowners are abused—exemplified, as the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) reminded the House, by what is going on at Knoydart—we must find some way of getting rid of such malpractice.
With reference to the feudal concepts of vassal and superior, the very language is provocative. In Andy Wightman's much-quoted book—which, incidentally, is full of detailed mistakes—there is a celebrated diagram that shows God at the top, next down the king, and so on. If we tamper with feudalism by confiscatory or redistributive means, all we are doing is vesting the land in the king. We may call the king the people, but there is still a monarchy, and the Government are still the legislative and administrative tool of the monarchy. It is not as easy as it seems. We cannot simply say, "We'll get rid of feudalism." Someone must own the land and be responsible for determining what finally happens to it.
The hon. Member for Perth (Ms Cunningham) referred to
ultimate ownership of the land by … the people of Scotland.
What does that mean? Who are "the people of Scotland", and how will they exercise their will? How will they make decisions that affect the land? I suspect that, if that principle were applied across the board, we would vest those rights in some amorphous, probably unresponsive, bureaucracy. Will its ultimate master be the Parliament in Edinburgh or Parliament in London? In some respects, it would be the Westminster Parliament—which would be even more ridiculous.
The question of redistributing land in Scotland is fraught with problems because of the confiscatory element that attaches to it. It is easy to say that the community—whatever that means: I do not know whether it is the local councils, regional councils or the Crofters Commission—will have the right to make certain purchases at 15 times the rental value. That proposal is totally confiscatory. Most landowners charge barely any rent to the crofters and others who live on their land.
Through that device, we would break up the large estates—regardless of whether they are run well and responsibly—and revert to a penal and confiscatory regime. If that occurs, Scotland will be the only country in the western world—except probably north Vietnam—where the private ownership of land above a certain level is against the law.
Is that what the SNP wants? I hear sharp intakes of breath from SNP Members; I shall be glad to give way to any hon. Member who wishes to intervene. What does the


hon. Lady mean when she says that the ultimate ownership of land should be vested in the people of Scotland? What does that mean if not a transfer of land ownership to some bureaucracy or governmental organ? I am waiting to give way—although we are short of time.

Ms Roseanna Cunningham: The right hon. Gentleman has, in the past five or 10 minutes, so wildly misrepresented the views of hon. Members on both sides of the House that it would be pointless for me to begin a point-by-point rebuttal now. The idea of power being vested in the people of Scotland is integral to the Scottish psyche. The right hon. Gentleman may or may not have heard of the concept of popular sovereignty. The idea of vesting ownership of the land in the people of Scotland derives from that doctrine of popular sovereignty. I realise that it may be difficult for the right hon. Gentleman to grasp that, but it is not difficult for Scottish Members to do so.

Mr. Clark: That is complete waffle. I asked a specific question: what does vesting ultimate ownership of the land in the people of Scotland mean? Ultimate ownership must be vested in a body of some sort, yet the hon. Lady replies with benign waffle about the people. That ownership must be vested in some administrative organ to which the responsibilities of ownership are devolved, but we are not told what that will be. It would be highly confiscatory to remove land from private ownership at 15 times the rental value and vest it in someone else.

Ms Cunningham: The right hon. Gentleman keeps referring to purchases at 15 times the rental value. I remind him that that figure was cited in a previous debate by the Minister for Education and Industry, Scottish Office, the hon. Member for Cunninghame, North (Mr. Wilson). I did not incorporate that specific proposal into my speech. If the right hon. Gentleman wishes to pursue that point, I suggest that he does so with the Minister who made it in the first place.

Mr. Clark: rose—

Mr. Deputy Speaker (Mr. Michael J. Martin): Order. I ask the right hon. Gentleman to move on. He has made his point, repeated it several times, and taken an intervention. He should now move on.

Mr. Clark: I apologise, Mr. Deputy Speaker. I am glad that I have succeeded in drawing those statements from the hon. Lady.
I warn the House not to rush into implementing penal or confiscatory measures based on false or generalised premises that, in many cases, are unfounded. Land ownership in Scotland is a sensitive issue, and it must be addressed case by case. I caution the Scottish National party and the Government against approaching this issue with certain fixed ideas at the back of their minds. They must tackle it in detail and with the sympathy that this wonderful asset, which belongs to the whole of the United Kingdom, deserves.

Dr. Norman A. Godman: I shall be brief, as I can see a certain hon. Friend scowling at me. We have just heard a spirited—and I think reasonable—defence of the interests of the landowning class in Scotland. However, I believe that, at long last, the right hon. Member for Kensington and Chelsea (Mr. Clark) is on the losing side in this campaign. He accused some of us of having a jaundiced view of the Scottish landowning class, and said that we would like to send its members to the guillotine. I would not do that to my hon. Friend the Member for East Lothian (Mr. Home Robertson). I think it is a fine thing that the Labour party has in its ranks representatives of the Scottish landowning class.
My hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) made several very important points—which the right hon. Gentleman acknowledged—about Knoydart. It is disgraceful that people can come in and use their ill-gotten gains to acquire land and people. If the day is dawning when those people will be booted out of Scotland, I say, thank heavens for that. We need radical land reform in Scotland. As a member of old Labour, I advocate taking the land back into public ownership, where it could be managed by local authorities and others.
My hon. Friend the Member for East Lothian raised a point, to which I shall refer in the next two minutes, about regulated access to land. I know that we shall not see in this Parliament the kind of legislation that the hon. Member for Perth (Ms Cunningham) and others desire. We shall have to wait—I think rightly and properly—until the Scottish Parliament in Edinburgh is up and running.
However, I have a question concerning a disgraceful piece of legislation proposed by the previous Government—the odd job lot; the English rural party—that introduced the offence of aggravated trespass. That legislation was introduced into Scotland because of what I would call the English problem of new age settlers who suddenly descend upon farms and small villages in England. We do not have that problem in Scotland, but the offence was introduced by way of the Criminal Justice and Public Order Act 1994.
The legislation has angered many people in Scotland, including ramblers and Monro-bashers—there are some of them in this party—fishermen and fisherwomen, and others. There is no need for it. I want to know—the Minister obviously cannot give me an answer today—how many people, engaged in legitimate recreational activities, have been charged under that disgraceful law. I suspect that it has never been used, so perhaps it could be excised from the statute book.
I am delighted with the comments of the noble Lord Sewel in the other place about public angling. I think that it is insane, and utterly scandalous, that people must pay to fish. Not long ago, I was fishing for trout in upstate New York where I spoke to another fishermen, a retired doctor. He was amazed when I told him about the fees that people had to pay in Scotland in order to fish for trout and salmon.
That water does not belong to the riparian owners. My hon. Friend the Member for Midlothian (Mr. Clarke), who has just entered the Chamber, is, like me, a trout fisherman—I regret to acknowledge that he is a bit more successful than I am. Bona fide fishermen and


fisherwomen should have the right, if we behave properly, to fish wherever we choose. The Scottish Campaign for Public Angling and other protest bodies and lobby groups are arguing a good case.
I compliment my right hon. and hon. Friends at the Scottish Office for examining the case for protection orders for the Tweed and the Tay, for example. Progress is being made. In the past, whenever these issues came before Parliament, all the backwoodsmen came out of the woodwork, or whatever, to vote in the other place to support their ancient interests. I believe that they are now defending what is largely a lost cause, thank God.

Dr. Liam Fox: I begin by adding my congratulations to the hon. Member for Perth (Ms Cunningham) on obtaining this important debate. We are talking about the need to identify barriers to the development of thriving and sustainable rural communities. The necessary test of anything that the Government bring forward will be that any changes in land use must lead to the removal of such barriers expediently and efficiently.
Implicit in several of the speeches today is that there has been a positive contribution from private land ownership in Scotland. With few exceptions, the tone of the debate has not been anti-private land ownership. In many parts of rural Scotland, considerable amounts of private capital are invested in land, with little or no hope of any return, by private investors. That investment generates considerable economic activity in rural areas, and could not be replaced by the public sector. The Treasury, working within its current constraints and looking for the sort of return on investment that it now seeks, would, I am sure, not be contemplating taking public land back into the public sector.
It is interesting that, in this debate, the Liberal Democrats have been the most hostile to private ownership. It is a Liberal party that I no longer recognise. The hon. Member for Stirling (Mrs. McGuire) smiled when we were hearing that Liberal Democrats do not call people names. The hon. Lady has obviously been dealing on a local basis with the sort of Liberal Democrats that I come across. I find them unrecognisable from the description of Liberal Democrats offered by the hon. Member for Perth.
Any prohibition on ownership of land by non-United Kingdom individuals could be in breach of article 2 of the treaty of Rome, and would fly in the face of the basic rights to own property and peacefully to enjoy the use of that property. Overseas or absentee ownership is far less important than whether the owner has the ability to fund and manage his land in a sustainable manner. Any reform resulting in owners needing to reside on their property would result in the loss of external private investment into fragile rural economies.
As for public ownership, I believe that there will always be a case for certain areas to be owned by public bodies. However, where no case can be made for public ownership, public bodies should divest themselves of land, as investment is likely to keep public funds locked up in low-yielding or negative-yielding assets.
In looking ahead to the Scottish Parliament, there has been talk of taxation. As for the effects of taxation on the land market, any increase in the burden of taxation on

land ownership is likely adversely to affect what are already recognised as fragile economies, which in turn will damage local investment and employment opportunities. I am sure that those who take their places in the Scottish Parliament will be aware of that.
Tenancies in agriculture have been central to agriculture in Scotland for generations. They allow those who wish to engage in agriculture to do so without the requirement to invest a substantial amount of capital in the acquisition of farms. Not everyone is able to marry into the family of the hon. Member for East Lothian (Mr. Home Robertson). There needs to be a balance, as I am sure the hon. Gentleman will accept, between security of tenure and easy access to tenancies. Farmers in Scotland. especially those in marginal stock-rearing areas, are facing considerable financial hardship, for reasons that are not for this debate.
The prospect of lower product prices suggests that farmers generally will have to adopt policies that will lead to a reduction in their overhead costs. That in turn is likely to lead to an increase in the size of farm units, which will be brought about by farm amalgamations. There will be an increasing requirement for farmers to broaden the income base of their businesses through diversification of their activities.
A strong tenanted sector in Scottish agriculture is necessary, but we would like to see that greatly simplified to enable agriculture tenants, by agreement with landowners, to engage in non-farming activities on their holdings. I think that that is a genuine cross-party wish in the House.
The introduction of farm business tenancies in England and Wales, in effect allowing freedom of contract between the landowner and farm tenant, has led to the creation of many new tenancies. We recognise that, in the present economic climate, many of these new leases will have been taken up by neighbouring farmers in enlarging the size of their existing holdings. Similar arrangements in Scotland would allow present farm tenants to negotiate terms with their landlords to enable them to diversify and strengthen their businesses.
The hon. Member for Perth raised an interesting point when she talked about the necessity for a bonfire of quangos. There are many barriers to land use that we need to examine, including planning, consulting bodies, statutory bodies, local taxation and sporting rates, soon-to-be Scottish taxation, transport and access, and affordable housing. These are all obstacles to land use, and factors that we need to consider.
Voluntary agreements to regulate public access to private land is, I believe, the best way forward. Access is not only about the public's aspirations, because there is a need to control abuses, as the hon. Member for East Lothian said, such as litter, vandalism and the inappropriate use of dogs. All these matters need to be taken into account in arriving at a balance.
We would welcome a clarification of current rights of access. It is not clear whether the statement that there is no law of trespass in Scotland is legally or factually correct. A restatement of the law by the Law Officers would be welcome. Perhaps the Minister will be able to clarify the matter when he responds.
A codification of the current access regime would be particularly beneficial in relation to unenclosed land. Any right of access would need to be formulated so as to strike


a balance with any environmental conservation factors and any economic activity taking place on the land. Such factors will vary from location to location, and we believe that the emphasis should be on reaching access agreements at local levels, balancing the respective interests of land users, those seeking access to land, and environmental considerations.
There is a real problem, because large areas of the highlands and islands may look open, but in fact contain large and important environmental sites, some of which are covered by sites of special scientific interest, while others are owned by special interest groups such as the Royal Society for the Protection of Birds. Unrestricted access in these areas could be highly damaging, and the regulation of access becomes extremely important. I hope the Minister will deal with that.
Whether or not the Government proceed to legislate for access, effective measures must be put in place to ensure that access is exercised in a responsible manner. We do not believe that there should be a general right of access to enclosed land. However, we would welcome the opening up, along with clearer mapping and signing, of existing rights of way. We believe that new rights of way should be negotiated and formalised between landowners and local authorities, with landowners being encouraged by means of positive incentives. The various millennium projects that are now under way in Scotland show how these can be taken forward.
To encourage rights of way to be opened up over enclosed land, it is important that the burden of maintaining them does not fall solely on the landowner. There could be a continuing future role for Scottish Natural Heritage jointly with local authorities in relation to the maintenance of rights of way, and appropriate funding would need to be made available to them for this purpose.
I shall read the words of the invitation issued by the hon. Member for Perth with some care, and respond to her later. However, in our submission we shall make it clear that we accept the need for reform of the feudal system, not least in the language which is used.
May I make a few general points on our approach to the Government's consultation? We believe that Scotland's landscape has benefited from generations of private investment, which could not be matched by the public sector. The ownership of land is irrelevant; it is whether the owner is responsible for positive land management that matters. The relationship between land use in rural and urban Scotland needs to be much better understood.
Existing landlord-tenant legislation needs to be overhauled. The question of public access needs to be fully and frankly debated, and long-term voluntary solutions provided. Existing planning regulations and regulators need to be better streamlined, to cut lengthy consultation periods. Limited reform of land tenure is warranted, but wholesale abolition of the existing system is not.

The Parliamentary Under-Secretary of State for Scotland (Mr. Calum Macdonald): This has been a constructive debate, and I shall try to answer all the points that were raised, although there were many, and some were quite complex.
I thank the hon. Member for Perth (Ms Cunningham) for her contribution to the current debate on land reform, and for creating this opportunity to discuss these important issues in the House. Her letter of 27 April to the Secretary of State was helpful, and I am grateful to her for sending it. I shall try to answer the specific points that she raised therein and in her speech today.
The amount of cross-party consensus that has been achieved this morning is remarkable. It even included Conservative Front and Back-Bench Members, who accepted the need for a radical look at land use and management. The right hon. Member for Kensington and Chelsea (Mr. Clark) seemed to accept the need for regulation and control of the market in large land sales, as we have seen operating in Knoydart.
We all seem to agree that the new Scottish legislature will be able to focus with fresh eyes on the particular circumstances and needs of the Scottish people. It is fitting that land reform legislation should be included in the new Scottish Parliament's earliest legislative programme. The way in which landholdings are owned and managed has a critical impact on the land's ability to sustain rural populations. At the end of the 20th century. archaic approaches to land management and ownership serve all too often to inhibit opportunities for local communities.
I shall cite two recent examples that come to my mind—other hon. Members would have many more that they could cite. In a well-known case in Skye, a landowner insisted on charging local fish farmers substantial sums simply for landing and transporting their fish on an area of foreshore to which he held the title. Another case reported recently, which is rather close to home for me, is that of a landlord who levies royalties on seaweed grown on rocks on the foreshore, which is harvested by local people.

Mr. Alan Clark: I agree that it is ridiculous to levy royalties on seaweed, but to charge fish farmers, who often make a substantial profit, something for the right to land their produce on territory under different ownership is a perfectly legitimate commercial device.

Mr. Macdonald: If the right hon. Gentleman were to look at that case, he might not come to that view. The foreshore in question was slap bang in between a croft belonging to the local fish farmers and a pier that was not built by the landowner, yet that piece of foreshore was used as an excuse to levy an extraordinary amount of rent from those fish farmers, who have since had to sell up.
We regard those practices as onerous and damaging to local economic initiative, and we are looking at ways in which they can be tackled. We certainly believe that land reform is needed to free land resources for the public good. That is why, last October, we set up the land reform policy group, chaired by my noble Friend the Minister responsible for agriculture, the environment and fisheries. Its task is to deliver a comprehensive agenda for early action by the Scottish Parliament on land reform.
Our overriding objective for that important work is to remove land-related barriers to the sustainable development of rural communities—a principle to which the hon. Member for Woodspring (Dr. Fox) referred. Such development must take an integrated approach to the key areas of economic, social and environmental policy, which underpin all the strategies in support of rural Scotland.


The land reform policy group intends to issue its final report by the end of 1998. Its recommendations must be available to inform the manifestos of the political parties contesting the first elections to the Scottish Parliament early next year, and I hope that they will prepare the way for early legislation on land reform by that Parliament.
The group started work last November, and issued its first consultation paper. Published in February, the paper set out to take the views of as wide as possible a range of people interested in the future of rural Scotland. Openness is the key. People who live in rural areas and are therefore affected by those issues should have a chance to contribute to the debate. We have taken steps to ensure that as many people as possible are aware of the group's work. Its approach to its task has been, first, to seek to identify the principal problems and opportunities to be addressed. We must be clear about exactly what the problems are before we begin to devise appropriate solutions.
The consultation period ends tomorrow, and I hope that the group can take on board the flavour and sentiments expressed in this debate. The group will consult again in the summer, to identify the best solutions to the problems that it has identified. The first consultation paper has generated considerable interest. My noble Friend welcomes the fact that more than 120 written responses have been received so far from individuals and organisations throughout the country.
The hon. Member for Perth suggested that a cross-party land convention be established, based closely on the Scottish Constitutional Convention. I am afraid that any parallel between her suggested body and the convention is badly drawn. I remind her that some political parties did not take part in the convention in the past—notably her own party. On the other hand, non-political groups and non-governmental organisations were heavily involved in it.
To replicate such a model in respect of land reform would require going beyond political parties, and would have to include bodies such as the Scottish Landowners Federation, the National Farmers Union, the Ramblers Association and the Royal Society for the Protection of Birds. That would not be a practical way to approach this matter at present.

Ms Roseanna Cunningham: I took care not to draw a parallel with the Scottish Constitutional Convention,

although I made a remark about wry smiles. Any convention that is set up would be best advised not to cut off from the debate central issues that might be of importance to a number of individuals. I agree with the Minister about the need for any solution to be widely drawn, but does he accept that we cannot continue fighting the battles of 10 years ago?

Mr. Macdonald: We can certainly build on the consensus that we have seen in this debate, and I hope that the group will be able to use this debate as a guide in its considerations. As I said, the group's findings will be publicly available in time for all political parties to draw on them in their plans for the first year of a Scottish Parliament. There may be a huge overlap in the plans put forward by political parties.
I shall not have time to cover all the points that the hon. Member for Perth raised, but I shall write to her about them. A number of hon. Members mentioned access. We are aware of the conflicts between various groups who use and own and in the countryside. The Government have asked Scottish National Heritage to consider the changes required to provide for equitable arrangements on access, and to clarify some aspects of the law on access. However, in view of the proposed time scale, changes to the law on access in Scotland will be dealt with by the Scottish Parliament.
I welcome the reception that was given to my noble Friend's announcement that he will set up task force to consider increasing opportunities for public angling over the coming year.
As for community involvement and ownership, the establishment of the community land unit last year by Highlands and Islands Enterprise, at the request of the Minister of State, has also been widely welcomed. In less than a year of operation, it has given technical advice and assistance to almost 20 communities, including assistance with the purchases at Orbost and Eigg for the benefit of the communities there.
I take particular pleasure in the fact that the once exceptional example of community ownership—the Stornoway trust—has now been joined by other communities elsewhere in Scotland, such as those in Assynt, Orbost and Eigg. That reflects the new priority and impetus given by the new Labour Government to land reform, and particularly to community ownership of land. There is no doubt that that is now high on the political agenda.

Far East Prisoners of War

11 am

Jane Griffiths: I thank the House for the opportunity to speak on this issue, which is still painful for many people. Anybody who has taken the time to speak to a war veteran or civilian internee cannot fail to be deeply moved by the atrocities that took place on the battlefields and in the prison camps of the far east. I know that several hon. Members will want to participate in the debate, so I intend to speak as briefly as possible.
I pay tribute to the bravery of those who fought on the battlefields of Asia and to the intense feelings still held by those who survive to this day. The memory of the atrocities that they suffered should not die with them. We must forgive those who were our enemies—but we should not forget. No one who had to endure the cruelty and barbarism that took place on those battlefields and in those prison camps could remain unchanged, and I do not want to undermine their still immediate and painful memories.
I call on members of associations such as the Japanese Labour Camp Survivors Association and the Association of British Civilian Internees Far East Region to display yet again the courage and determination that made them heroes not so many years ago and the indomitable spirit that has always distinguished the British both on and off the battlefield. Now is the time to use that courage and spirit finally to allow the wounds to heal.
This is not a party political issue. One cannot imagine any hon. Member using the suffering that was endured in the far east as a party political football. Successive Governments, both Labour and Conservative, have worked hard since 1945 on behalf of former prisoners of war and internees. Now is the time for us all to accept that the 1951 peace treaty signed with Japan in San Francisco cannot be reopened. We should be encouraged by the fact that in recent years the Japanese Government have, for the first time, acknowledged the extent of past atrocities. Until recently, those atrocities and a number of events were not even allowed to be referred to in school textbooks.
I know that many veterans dispute the strength of the wording of the apology offered by the Japanese Government in January 1995, which was repeated in January this year.

Mr. Patrick Nicholls: The hon. Lady has clearly researched her subject well and will therefore know of my particular interest in it. I accept that the legal position is precisely as the hon. Lady is setting out, but does she not recall that when my right hon. Friend the Member for Huntingdon (Mr. Major) took up the matter, he was seeking not to reopen the legal case but to assert the moral claim? Surely she will not deny that, whatever the law may say, the Japanese Government have an enduring moral obligation that a mere apology without compensation does not begin to discharge.

Jane Griffiths: I fully agree with the hon. Gentleman that the issue of the moral claim remains, and I pay tribute to the right hon. Member for Huntingdon for his efforts.
I shall give the House the briefest of lessons in the Japanese way of apology. In English, one says, "I am sorry," or, "I apologise," and there are not many more

ways of expressing apology. In Japanese, there are a great many ways. One says, "shitsurei shimasu," or, "gomen nasai," if one accidentally bumps into someone. The word used by the Japanese Prime Minister on behalf of the Japanese Government was "owabi," which is translated as "apology". That is a formal, high-level apology. Many representatives of the prisoners of war and internees want the word "shazai" to be used. It is not possible to translate "shazai" other than in the same way as "owabi"—"apology".
Many former prisoners of war and civilian internees argue, as did the hon. Member for Teignbridge (Mr. Nicholls), that an apology is meaningless without further compensation. Article 14a of the San Francisco treaty set the amount of compensation according to Japan's economic situation at the time. The article says:
the resources of Japan are not presently sufficient if it is to maintain a viable economy, to make complete reparation for all such damage and suffering.
The Japanese economy is now in a rather different state from that of 1951. It has been suggested that new evidence exists of an open door for Governments to make claims against the Japanese Government for further compensation on behalf of those heroes, but I dare to say that we must allow the door of history finally to close on the technical and legal disputes arising from the treaty. We have a modern Britain with a new Government that has modern relations with a modern Japan.
I pay tribute to Keiko Holmes, the Japanese widow of a British man, who yesterday received an honorary OBE for her work on reconciliation and in helping to heal the wounds. I pay tribute also to the Royal British Legion, the Burma Star Association and others, who have wholeheartedly welcomed those efforts at reconciliation.

Mr. Alan Clark: I have listened to the hon. Lady's reasonable and careful explanation of linguistic differences and her statesmanlike approach to the problem, which she has placed in the setting of the present age. She may have constituents who have written to her on this subject, as do many hon. Members. The victims' families feel bitter about the issue, and it is a scar that will remain with them indefinitely. Does she not think that, if we were to close the door, as she put it, it would be seemly if that were accompanied by substantial compensation?

Jane Griffiths: I agree that those scars will not heal and that the bitterness will not simply go away. We should not wait for all the veterans to die and then say that the matter is finished, because it will not be finished.
I turn now to a forgotten war and the forgotten heroes of another Asian conflict, which did not end in victory or defeat for anyone and has never been given as much time in the House as many of those forgotten heroes and hon. Members would wish. I refer to the conflict in Korea from 1950 to 1953, during which 1,078 British troops died and 2,674 were wounded. There were 1,060 British prisoners of war held in Korea by the Korean people's army and the Chinese people's volunteers.
One of those prisoners of war was Mr. Bill Clark from Reading. He spent almost three years as a prisoner of the Chinese people's volunteers, and I pay tribute to him. He suffers now from crippling osteoarthritis. He believes—and I am inclined to agree—that his condition was


brought on not only by three years of an inadequate diet and sleep deprivation, but by sleeping on the ground in extreme weather conditions. Many of his comrades who were incarcerated with him are not with us today. They died too young, many from liver disease brought on by malnutrition. Prisoners in Korea lived mostly on sorghum, a grain that has little nutritional value, and cabbage.
Since coming to the House, I have had the tremendous privilege of sharing the painful memories and experiences of many heroic individuals. Mr. Bill Clark told me a great deal about his experiences, including the political indoctrination to which prisoners of war were subjected. They were offered extra food, cigarettes, pork or rice if they would accept that indoctrination and denounce the United States and the western powers. They refused to do so. British prisoners of war, in particular, refused to do so.
Anyone who has read Sir Anthony Farrar-Hockley's history of British involvement in the Korean war will know of the Kangdong camp, which prisoners called the caves. In the summer of 1951, the Korean people's army held prisoners there in darkness and in partially flooded tunnels. The sick and wounded were refused treatment. To get above ground to see daylight, prisoners had to engage in anti-United States propaganda. The prisoners' leading officer, Lieutenant T. E. Waters, told his men to accept that offer and to engage in propaganda. Wounded himself, he felt unable to do so, and he died in the caves. We should remember him. He was awarded the George cross posthumously, but all too many of those who suffered in Korea received no award and no remembrance.
Of the 1,060 prisoners of war, 978—a large proportion—came back from Korea. The war was a United Nations conflict and troops from many countries took part. A large proportion of the British prisoners came back alive, which is another tribute to the indomitable spirit to which I referred earlier; but 71 are known to have died in the prison camps and 11 remain unaccounted for, presumed dead.
We are not talking only about Bill Clark from Reading, who would be in the Strangers Gallery to hear this debate if the osteoarthritis that he has suffered for so many years did not prevent him from travelling. We are talking about all those men. Osteoarthritis does not currently attract a war pension enhancement entitlement in the United Kingdom, although I believe it does in the United States. Korean war veterans are not always represented in Armistice day parades everywhere in the country, which is a shame.
I call on the House to take a moment to reflect on the forgotten heroes of Korea, most of whom were young national service men whose childhoods had been spent in the privation of the war years. I hope for the sake of future generations that our new Government will do all that they can to bring to an end the dangerous and uneasy stalemate on the Korean peninsula. I believe that other hon. Members will wish to speak today, and I am sure that they will wish to pay tribute, as one or two have done already, to the forgotten heroes, to their suffering and to the need to heal wounds that cannot heal at present.
I am sure that some hon. Members—and some former prisoners of war and civilian internees in the far east, who suffered so atrociously—will disagree with my call to let those deep and painful wounds heal, but I ask everyone to reflect on the dignity and courage that the British have always shown in the face of adversity. As a fitting tribute

to the many who fell and the many who suffered, let us finally lay to rest a tragic period of history as we look to the next century and to a modern Britain that has modern, positive relations with a modern Japan.

Mr. Patrick Nicholls: It is always difficult for a relatively new Member to make a speech of that sort to the House. Sometimes, members of the public say that there are not many people in the Chamber, but we all know that even if there are just three people in the Chamber, it can be an awesome experience. I compliment the hon. Member for Reading, East (Jane Griffiths) on the way in which she spoke.
I suspect that there is a very good debate to be had on the sufferings of people in Korea, but I hope that the hon. Lady will forgive me if I concentrate my few remarks on the sufferings of those who were formerly Japanese prisoners of war.
I do not need to regale the House with stories of how prisoners of war were treated. Every time I speak in one of these debates, I make a point of going back through my briefing material and reading speeches that right hon. and hon. Members have made over the years. Familiarity with the material never entirely diminishes the shock of reading about those cases. Warfare, bloody and bad as it is, does not begin to compete with the indignity and humiliation to which the Japanese subjected civilians and prisoners of war. That is a matter of fact, and the hon. Lady, to her credit, has not sought to get around it.
We have heard before, and I shall not repeat it today because time is short, of the truly derisory amounts of money that the Japanese paid at the time. Those sums were all that the country was apparently capable of paying at the time. Circumstances change, and the state of Japan today is vastly better than it was in the aftermath of the war.
It is not my job to concede the legal case. From what I have read, and considering the changing state of international law, there is, to put it at its most neutral, an arguable case that international law would not prevent our returning to the subject; but let us put that to one side.
The fact that we are having this debate at all stems from the initiative undertaken by my right hon. Friend the Member for Huntingdon (Mr. Major), when he was Prime Minister. He conceded, as the Government of the day were bound to do, that, although no legal case could be argued, there was an overwhelming moral case and a moral obligation that transcended legal niceties.
My right hon. Friend was seeking to achieve two things: an unambiguous apology and an unambiguous apology backed up by compensation. Even allowing for the fact that different cultures have different ways of approaching the question of apology, an apology without the compensation that would do something to make the lives of people in their twilight years slightly more bearable would frankly be an apology that came pretty cheap.
The fact that we are here today will, I hope, convey a courteous and forthright, but unanimous, message to the Government of Japan that merely to discharge their legal obligation—if that is what they think they have done—does not for one moment discharge their moral obligation. The moral obligation remains. I would not like, and I am


sure that the hon. Member for Reading, East would not wish, a selective reading of what she has said today to be used by the Government of Japan as the basis for thinking that the House of Commons merely wants to let sleeping dogs lie, that an apology has been made in words suitable in that country and that there is nothing more to it. It is unacceptable for the Head of State in Japan to come to this country and think that all these things happened a long time ago and nothing further need be done.
We have had many lectures in recent times about ethics in foreign policy. Since the last war, we have been served on a number of occasions by Foreign Secretaries of character and distinction from both parties. Now, we have the right hon. Member for Livingston (Mr. Cook). If ethics in foreign affairs is to mean anything at all, it is about facing up to moral obligations. There is a suggestion that we do not want to offend the Japanese.
I am in the business of realpolitik; we all have jobs in our constituencies that mean we must get on with Japan. That is all well and good, but it would be an appalling dereliction of our duty to people, alive and dead, to say casually that we talk about ethics in foreign affairs but must not upset people who create jobs.
If the House of Commons means anything, it means being able to stand up fearlessly, courteously and unambiguously to talk about moral obligations when they exist. The moral obligation of the Government of Japan today is total.

Mr. Gordon Marsden: I echo the comments of the hon. Member for Teignbridge (Mr. Nicholls) about my hon. Friend the Member for Reading, East (Jane Griffiths). It is no easy task to open an Adjournment debate, particularly on a subject as sensitive as this. I congratulate her on the sensitivity with which she spoke.
Many of my elderly constituents are former far east prisoners of war. One of the accidents of history is that, at the fall of Singapore, many Lancashire regiments and Lancashire people were caught up in the conflict, and, like many hon. Members, I have had many graphic first-hand accounts from survivors.
One of my constituents, Mr. lain Mitchell, who was captured as a teenager in Singapore, wrote an excellent and moving book, without rancour and without haranguing, about his experiences at the hands of the Japanese. I have that constituency debt to discharge, but there is a wider debt.
As an historian, before coming to the House, I edited a magazine in which Japan's role in the second world war was discussed. I recognise the progress that has been made, not least in the wake of the Prime Minister's recent visit to Japan, by the Japanese Government and people in addressing these sensitive issues. I welcome the pledges on the development of scholarships for the children and grandchildren of former far east prisoners of war and the programme of reconciliation visits. I welcome unreservedly Prime Minister Hashimoto's apology on the occasion of the Prime Minister's recent visit. However, that does not discharge the account. More needs to be done morally and from the perspective of international relations.
I regret that Japan has not addressed the issues of war guilt or war crimes officially or generally in the way that the Germans have done. Japanese society in current affairs and debates has not worked through the painful and anguished debates in which the Germans have engaged, especially in the past 15 years.
Some hon. Members may be familiar with the work of the writer Ian Buruma, who three or four years ago published an interesting book called "The Wages of Guilt" on the subject of the different attitudes of the Japanese and the Germans and the different ways in which they have treated their war legacy. One of the issues he raises which I raised in my letter to the Japanese ambassador on 15 January, is that, despite the understandable emphasis in Japan on all aspects of war suffering, not least as a result of Hiroshima and Nagasaki, there has been little or no recognition or explanation in Japanese text books or teaching of Japan's part in second world war atrocities, including the ill treatment of far east prisoners of war.
I stand ready to be corrected, but as far as I am aware there has been no equivalent on Japanese television of the holocaust programme that caused such soul searching in Germany a few years ago and which prompted so many of the initiatives by the German Government in respect of holocaust survivors and others who were ill treated in the second world war. As my hon. Friend the Member for Rotherham (Mr. MacShane) said on an earlier occasion, there has been no equivalent of a Japanese Prime Minister falling to his knees and asking for forgiveness as Willi Brandt did at the Warsaw ghetto. People should reflect on those matters, not just from the perspective of the treatment of and justice for far east prisoners of war, but in terms of Japan's full entry to the world as a democratic, international player.
The hon. Member for Teignbridge alluded to precedents for the reopening of matters that have been closed. Many German manufacturers and employers who used forced labour during the war have voluntarily taken up the issue. Volkswagen springs to mind. The current debate about the treatment of Jewish assets by Swiss banks is another reflection of the same principle.
Only two days ago in a Japanese court the principle of compensation for Japan's wartime sex slaves, the so-called comfort women, was acknowledged by the judge. The report stated that there seemed to be a clear case of sexual and ethnic discrimination as well as a violation of the human rights that are enshrined in the constitution. There are precedents for reopening such matters, but it is not for me to say how they should be reopened and what compensation should be paid.
As I have said, I wrote to the Japanese ambassador on 15 January. One of my suggestions was that, if the Japanese Government were not prepared to increase the compensation package for individual survivors, other steps, such as considering payments to a trust fund to help current victims of physical and mental torture, could be taken. Those people include survivors from the prisoner of war camps, many of whom still suffer physically and from severe mental trauma as a result of their treatment.
More must be done, and the Japanese Government have a duty to account to the civilised community of nations. I respectfully suggest that the British Government also have a duty continually to remind the Japanese Government, politely and diplomatically, as did the Prime


Minister on his recent visit, of the importance of that. Garrett Mattingly, who was a great 16th-century historian, said that it mattered that the living do justice, however belatedly. He was writing about doing justice to the reputation of a commander in the Spanish armada of 400 years ago. For the living to do justice, however belatedly, to people who died in the prison camps and to those who suffer today also matters.
We do the Japanese people and Government no favours by suggesting that a line can be drawn under the injustices although they have not been fully addressed in the debates and in the consciences of that society. Recently, in the context of the Irish question, there was a recognition of Bloody Sunday by the Prime Minister, and he commented on the potato famine. There are always opportunities for Governments and peoples in the present to take examples from the past that will carry forward and improve future relations.

Mr. David Drew: My hon. Friend is making an excellent speech. Does he accept that, as we approach the millennium a full apology with compensation by the Japanese would be a symbolic, acceptable way forward?

Mr. Marsden: I agree that that is a way forward, but I wish to stress to the Japanese Government and to hon. Members the importance of these continuing issues. Injustices do not go away in history; any student of what has happened in central and eastern Europe over the past five to 10 years will bear that out. The issue of the Korean comfort women continues profoundly to affect relations between Japan and Korea.
In common with all hon. Members, I should like the visit by the Emperor of Japan in the next few weeks to lead to a further improvement of our strong ties with Japan. No one is keener than I am to see them developed and strengthened, but I respectfully suggest that a greater readiness by the Japanese Government to confront the issues and to accept all the domestic and political difficulties that that may entail would go a long way towards comforting those families and survivors who suffered at the hands of the imperial Japanese army.
Justice and the recognition of what it is are not time-limited or time-sensitive. Japan's acceptance of its grave misdeeds would be a comfort to my constituents who were prisoners of war in the far east and who daily remember what was done. It would also be a recognition that, as we approach the millennium, Japan is moving on to take its full place in the international democratic community.

Dr. Michael Clark (Rayleigh): I, too, congratulate the hon. Member for Reading, East (Jane Griffiths). I had come to listen to the hon. Lady and had not intended to speak, but, as result of what she said, I want to say a few words in her support.
I have taken an interest in Japanese prisoners of war for more than 40 years—my interest began long before I entered the House. I remember reading Russell Braddon's book as a very young man. He said that, although the peace treaty had been signed, it would be very difficult for him and his fellow prisoners of war to forgive the Japanese for what had happened in the prison camps. He recalled that, when he was released from the prison camp,

the last thing that a Japanese officer said to him was, "You have won this war, which has lasted just a few years, but we shall win the war that will last for 100 years."
Perhaps the officer meant the trade war that would take place in the second half of the century, in which there is little doubt that Japan did very well—it could even claim to have won that war. As we were magnanimous in victory and helped the Japanese to rebuild their country and their industries—we helped them back on their feet with much effort and substantial financial aid—surely the Japanese, now that they have moved forward so far in the trade war, even if not to total victory, can find it in their hearts to compensate those who suffered so appallingly in the prison camps at the hands of their army.
Eight or nine years ago, I read a book by my constituent Ernie Warwick, "Tamajo 243", which again highlighted the deprivation, misery, bestiality and cruelty of the prison camps. I have worked with Bill Holtham from Southend—he is, I think, the founder member of the Japanese Labour Camp Survivors Association, at whose dinners I have spoken several times. More recently, I read the book "Line of Lost Lives" by, I think, John CosfordI cannot quite remember his name, although I know that he was born in Royston and now lives in Bury St. Edmunds.
From all those people, we learn of the appalling conditions that the prisoners had to suffer, yet their compensation as a result of the 1951 peace treaty was £76. Admittedly, that would be worth more in real terms now, but it was none the less a miserable sum. I fear that saying sorry in whatever Japanese word the hon. Member for Reading, East mentions is not enough—words come cheap, even though the Japanese have been reticent in using the more powerful word for "sorry". Perhaps they believe that, after holding back and using a simple word for "sorry", it would be a major concession to use a more elevated word later. However, there is little difference between the various words for "sorry" if they are not accompanied by compensation worth far more than the £76 that was awarded in 1951.
Some people say that schemes for rehabilitation and reconciliation should take the place of compensation—former British soldiers will visit Japan to pay homage to the Japanese war dead, and Japanese soldiers will visit Britain to pay homage to the British who died in the prison camps. As someone said yesterday—it may have been Mr. Titherington—there is a big difference between the Japanese who died in battle and the British who died bound in barbed wire, starved of food and vitamins and probably beheaded after having been bayoneted in the gut. I do not see the comparison.
I fear—the hon. Member for Reading, East may fear it, too—that some form of compensation will be agreed in 10 years perhaps, when the number of camp survivors will have dwindled to only a few handfuls. The survivors are already becoming frail from old age, but many also have to deal with problems that arose from the deprivations and the starvation that they suffered in the prison camps. In 10 years, there will be fewer survivors, so the Japanese will have to find only a small amount of money to award compensation, even if the sums are individually generous.
If the Japanese do not pay compensation now—when we are trying to settle the issue and the emperor is visiting this country—but try to do so in 10 years as a sop to their conscience, I hope that we reject their offer. It would not


be right for them to offer compensation when most of the former prisoners have died from natural causes or because of what happened to them in the camps—that would be a cheap and tawdry way for them to avoid their responsibilities.
When I first started work with ICI in 1960 or thereabouts, a Japanese delegation visited the plant at which I was working and offered us all a high-quality slide rule—I still have mine. I accepted it reluctantly, however, as I did not want to receive a gift from the Japanese 15 years after the war had finished.
All that is out of the way now—like many of my constituents, I buy Japanese goods and possess Japanese electronics. We have given up boycotting goods from Japan. We meet Japanese people on equal, friendly terms—as chairman of the Inter-Parliamentary Union, I had many good meetings with good Japanese people. However, those good people must realise that there were bad days. The Japanese nation and Government must recognise that fact and, in doing so, consider compensating the ex-prisoners.
The ex-prisoners I meet do not want pity; they want justice, as all hon. Members want justice for them. In every court in the world that I know of, especially in cases of physical hurt or where the damage sustained has affected people's earning power, justice consists of not only the word sorry, but appropriate compensation. That is the justice that the House wants for the ex-prisoners of war.

Mr. David Lepper: I add my congratulations to my hon. Friend the Member for Reading, East (Jane Griffiths) on securing this debate, and on the knowledge and sensitivity that informed her speech. I wish that we did not have to have this debate; the issue should have been settled years ago, in so far as it can be settled by words and money. As the generation that came after the second world war—looking around the Chamber, I guess that, with one or two exceptions, all of us are of that generation—we should not still have to be debating the issue. However, this is an appropriate time for us to debate it.
I pay tribute to the work of the Association of British Civilian Internees Far East Region, which has unearthed documents in the Public Record Office at Kew that suggest that there are grounds for us to reopen the legal question of the compensation that was agreed in the San Francisco peace treaty. It has also found that secrecy surrounded the decisions of the British Government in 1955, when this issue was brought to the attention of Ministers and civil servants. I hope that we shall hear from the Minister today that serious consideration will be given to the implication of those investigations—that the compensation issue could be reconsidered on a legal basis.
It is also an appropriate time for this debate because, as my hon. Friend the Member for Blackpool, South (Mr. Marsden) has reminded us, just this week, the Japanese courts made a decision in relation to the treatment of the so-called comfort women from Korea and the compensation that has been awarded to them.
Having inherited that legacy from past British Governments, this Government also have responsibilities. It was the British Government who advised and, in fact,

requested at the outbreak of the second world war that civilian workers in the far east should stay where they were in post for the good of the empire.
Subsequent British Governments have inherited a responsibility to honour their debt to those civilians working in the far east, as well as to military personnel who became prisoners of war.
I hope that this Government will carefully examine the anomalies in the social security system that may still prevent some survivors of the prisoner-of-war and internee camps from claiming benefits to which their equivalents—their colleagues—in other countries are entitled. I have heard stories that some injuries are not deemed relevant for benefit because medical records made when the injuries were received are not available. Is it any wonder that the medical records from prisoner-of-war or internee camps are not available? I hope that that is another issue that our Government will take up.

Mr. Peter Bradley: Is it not sad that many former prisoners of war and civilian internees too often have cause to consider the War Pensions Agency as the enemy within? I think of my constituent Mr. Ian Mason-Summers who, having spent many of his formative years in Changi, has been pursuing a claim for justice for nine years with the WPA. At a time when we should be giving recognition and respect to the dwindling number of people who served and suffered for their country, is it not sad that all too often, the WPA is adding insult to injury?

Mr. Lepper: I thank my hon. Friend for his intervention. I agree with that point and use it to emphasise a message that I hope the Minister will take back to his colleagues in other Departments: we want them to examine these issues seriously.
I am sure that we all welcome the steps that have been taken—which have been described by my hon. Friends the Members for Reading, East and for Blackpool, South—by the Japanese Government both to acknowledge the serious errors of past Japanese Governments and, indeed, to make some recompense, but still not enough has been done. I find it hard to reconcile the stories that I hear from survivors of those camps of the treatment they received with my personal experience of an all-too-brief visit to Japan, and with the courtesy and frankness that I have found during my informal conversations since being elected to the House with Japanese embassy staff. I find it hard to reconcile those stories with the difference in culture that I suspect has arisen in Japan over the past 50 years.
I am pleased that I represent a constituency that shares with Hiroshima and Nagasaki the honour of having been designated a United Nations peace messenger city. Brighton received that honour, as have other cities, because of our special concern and work to help to mitigate the effects of war, particularly on civilian populations. Increasingly, it is civilians who suffer in time of war. I mean no disrespect to military prisoners of war, but I should like the House to consider in particular the experiences of civilian internees in the far east in the second world war.
I have talked about the appropriateness of this debate. There could be no more appropriate time in view of the emperor's visit next month, and I look forward to that


visit. It gives those of us who represent the post-war generation in both our countries an opportunity to signal the beginning of a new era in the relationship between our two countries, and it gives the Japanese Government the opportunity to take that essential step further in terms both of acknowledgment and of compensation, for time is running out.
Over the past 20 years, I have had the honour and privilege of meeting on many occasions members of the Burma Star Association in the Brighton and Hove area. Every year, of course, fewer and fewer association members are able to come to those meetings but, when the last member has died, the memory of what they and the civilian internees suffered will not have died with them. I hope that, today, we shall have some assurances from the Minister that the emperor's impending visit will be taken as an opportunity for us to settle, in so far as words and finances can settle it, this issue, which should have been settled 50 years ago.

Mr. Shaun Woodward: I, too, congratulate the hon. Member for Reading, East (Jane Griffiths) on raising this subject. It is an important and obviously timely debate, with the impending visit of the emperor in May. I should declare the fact that I paid my first visit to Japan only last year as a guest of the Japanese Government. Like many people who have been fortunate to visit Japan, I could not help but be terribly impressed by it because it clearly is a different country and has a different culture from the Japan of 60 years ago, which embarked on a very aggressive imperialist policy in its world war activities. Things have clearly changed.
Japanese people are now outward-looking; they want to promote peace. Indeed, many people in Britain—65,000 or so people directly benefit from jobs from Japanese inward investment—have to be grateful; Britain has to be grateful that 40 per cent. of Japan's external investment comes this way. There is much to be said on the positive side, but—I do not wish to disagree with the hon. Member for Reading, East and I am sure that this will not be taken in that sense—I do not believe that we can close the door on the past. I say that with deeply held conviction.
One of my constituents, Arthur Titherington, chairman of the Japanese Labour Camp Survivors Association, is in the Gallery today. In the past 10 years, since founding the organisation, he has worked tirelessly in promoting the cause of the 14,500 people who have belonged to the association. The cause has been a difficult one for Mr. Titherington to pursue, as it causes him to recall not only much personal pain, tragedy and loss, but his many friends who suffered and died.
Since its inception 10 years ago, the organisation's membership has fallen from 14,500 to 9,500, simply because its members are elderly and some have died. As the hon. Member for Brighton, Pavilion (Mr. Lepper) said, time is running out. We cannot close the door on the organisation's 9,500 remaining members, or on the widows who have been left behind.
I do not believe that we can say that the 1951 treaty created a legal buttress to justify not pursuing the case of former prisoners of war. The argument has not only a legal basis, but a very important moral one, which is as relevant in the world today—as we consider pursuing those who committed war crimes in the former

Yugoslavia—as in the past. We should not forget. It is right that we should, as a civilised society, continue with negotiations, not only for the sake of those who have suffered, but to show that we will be staunch in dealing with the matter in future.
Despite the emperor's imminent visit, the Government should not avoid the issue entirely. However, I do not share the view held by some people that public protests during the visit would be constructive. In the past few years—because of the work particularly of my right hon. Friend the Member for Huntingdon (Mr. Major), but also that of the Prime Minister—the Japanese Government have shown that they are prepared to make some progress on the issue. Their new attitude was demonstrated by the fact that, last year, they offered a different type of apology from that which they had offered previously. Nevertheless, more can be done.
The prisoner of war issue is not a party political one. However, last night, Mr. Titherington and his colleagues were gravely disappointed after leaving a meeting with the Minister. They had been led to believe that more could be done, and they now rightly expect the Government to continue pressing their important case.
I ask the Minister today to tell the House what further action he will take. Much has already been achieved, for which we must give full credit to the Prime Minister and to Ministers. Nevertheless, we cannot say in the case of Mr. Titherington and his colleagues that we have done what we can; we must pursue the matter.
The House will welcome two actions: first, the Minister telling us today what he will do; secondly, his conveying to the Prime Minister the obviously very strong feeling of hon. Members on both sides of the House that the matter should not be allowed to rest. The matter should be pursued until adequate compensation and terms of apology have been received.

Mr. Lindsay Hoyle: I congratulate my hon. Friend the Member for Reading, East (Jane Griffiths) on securing this debate. All hon. Members know someone who has been a prisoner of war, which shows that many former POWs are still alive and hold memories of their suffering. The House must preserve those memories, as the Japanese will neither acknowledge nor pay for their deeds. The time has come when they must stand up and pay. What better opportunity could the Japanese have to establish a fund for former POWs and—I agree—civilian internees than the emperor's visit to the United Kingdom? Let the Japanese pay now, before it is too late—and 10 years from now will be too late.
A friend of mine, Jim Hodson, is a Labour party member and former POW. He never discusses what happened to him as a POW or complains about it. He is a man of silence and keeps to himself what happened in that camp. However, I believe that he should be compensated for his suffering in the camp and for the emphysema that he now suffers. Everyone else who suffered in camps should also be compensated. Although his silence is a tribute to his qualities, he must live daily with his memories, and go to sleep each night with thoughts of what he has suffered.
The time has come for the House to unite not in attacking Japan, but in pleading with it to do the decent thing—to put compensation on the table. Let the emperor come with a gift to those who have suffered.

Mr. Mark Oaten: I join other hon. Members in congratulating the hon. Member for Reading, East (Jane Griffiths) on securing this debate, which has been very positive. The speeches have shown the strength of all hon. Members' feeling about the need not only to see justice but to represent the many former prisoners of war who have come to our constituency surgeries.
As one of the co-chairmen of the all-party group representing prisoners of war, I am extremely concerned at possible events in the next month, in the run-up to the emperor's visit to the United Kingdom. Later in my speech, I shall focus on ways in which we can try to work together to make the visit a success.
Let me start by recalling a cold December evening last year, and one of my surgeries in my Winchester constituency. All hon. Members will agree that, as we look ahead to our surgeries, we often wonder what complicated issues we may have to face. However, that surgery was slightly different, because Keith Martin—one of my constituents, and chairman of the Association of British Civilian Internees Far East Region—came to discuss an issue, which I must confess that I, as a relatively young Member of Parliament, knew very little about.
Keith Martin told me about his experiences as a prisoner of war. At the outbreak of the Pacific war, he was 13. Between 1941 and 1946, he did not see his mother, as she was in Stanley prison, in Hong Kong. He was forced into hard labour. As we were nearing the end of our conversation, he said that, towards the end of his internment, he had to dig the grave of one of his friends. I was appalled to hear those experiences. I think that many young people find it very difficult to comprehend what happened to former POWs.
Keith Martin asked that an all-party group on prisoners of war should be established, to provide a forum within Westminster to deal with the issue. He acknowledged that we have come close to achieving that goal, and said specifically that the hon. Members for Rotherham (Mr. MacShane) and for Teignbridge (Mr. Nicholls) had been instrumental in raising the issue on the Floor of the House. I praise them for their work over the years. Although they came very close to establishing an all-party group, the general election intervened and stopped progress on it.
I confess that I wrestled with the idea of becoming involved in trying to establish an all-party group. My initial reaction was to ask, "Why should we drag up the past? Why should we not look forward?" However, after discussions with prisoners of war and many other people, I became absolutely convinced that we can begin to look to the future only by re-examining and properly settling the past. It was right and proper to establish the group. Unless the issue is resolved, it will always be a thorn in the side of relations between the United Kingdom and Japan.
We established the all-party group to provide a voice in Parliament to those representing former POWs and civilian internees. In establishing the group, we received help from the Royal British Legion in accessing as many groups as possible. The group has been in touch also with many individuals throughout the country. From our contact with groups and individuals alike, we have been able to develop a picture of the gritty spirit that they have shown over the years.
It is a shame that this is not the first time that the House has debated the issues surrounding former POWs and civilian internees; some of the groups must be wondering when any progress will be made.
The all-party group is not a pressure group; we are trying to obtain the views of the individuals concerned, and I acknowledge that there are many difficulties and differences about the way in which progress should be made. Nevertheless, it is an all-party group, and I am delighted that the right hon. Member for Wealden (Sir G. Johnson Smith) and the hon. Member for Southampton, Test (Dr. Whitehead) are my fellow co-chairmen.

Dr. Alan Whitehead: I pay tribute to the hon. Gentleman for his tenacity in finally setting up the all-party group. That group has received wide support and the feeling is widespread in the House that something needs to be done to reflect what we have heard this morning. Has the hon. Gentleman raised the issue with the relevant Minister, and if so, what response has he received?

Mr. Oaten: I can confirm that the all-party group has been in contact with the Minister, and I am delighted to say that we had a positive response and that he is to hold a meeting with the all-party group next week. I welcome that as a chance to raise the issue, and the group is grateful for the responses that we have received.
In December, it was announced that the Japanese emperor was to make a state visit to this country. When his father came here in 1971, he was greeted by silent crowds. All hon. Members who have spoken in this debate, and the former POWs, would want to seek a way forward to avoid that happening again; but survivor groups have made it absolutely clear that they intend to use the visit as a focus for their efforts.
There is concern among survivors that the compensation and apology issues are being glossed over and that we may be forgetting too easily in order to forgive. The groups planned peaceful demonstrations, and the news early in April that Britain is to give the emperor the highest order of chivalry, the order of the garter, brought their concerns into sharp focus. I believe that hundreds of survivors will now line the Mall and turn their backs on the emperor as he passes. I do not want that to happen, but I understand the motives that may cause it to. I hope that all efforts will be made to avoid it. The Royal British Legion, the Burma Star Association and the Burma Campaign Fellowship Group have asked me to say that they have decided not to take part in those demonstrations.
Everybody is anxious to avoid the protests, but I believe that public opinion is with the former prisoners of war. There have been no opinion polls, but I fear that the Government may have misjudged the issue and that the demonstrations may capture the public mood. At annual parish council meetings in Winchester over the past couple of weeks, I have spoken to about 500 individuals, 90 per cent. of whom felt that there was great injustice in the emperor being awarded the honour in the absence of an apology or compensation.
We must address in the coming month the two pivotal issues of compensation and an apology. We should not say, as I believe the Government have been saying, that the subject of compensation should not be brought up again. It cannot be put aside so easily.
The hon. Member for Brighton, Pavilion (Mr. Lepper) talked about research—conducted, in fact, by my constituent, Keith Martin—into compensation. Forgotten documents from 1955 that have been found in the Public Record Office suggest that the 1951 San Francisco treaty may not be the last word on the issue.
A Foreign Office note of 26 May 1955 agreed that Japan's settlement with Switzerland—which was the equivalent of more than £2,000 per person, as opposed to the £71 that the British POWs got—and the compensation settlements with Burma, gave those countries' POWs greater advantages than those accorded to the signatories of the 1951 treaty. The document refers to article 26 of the treaty, under which, if Japan were to grant any state greater advantages than those provided by the treaty, it would be obliged to extend that to the other parties: in simple terms, what was right for Switzerland and Burma should have been right for our POWs.
The Foreign Office decided at that time that, in the interests of the restoration of the Japanese economy, it should not invoke article 26 and claim parity with the Swiss and Burmese settlements, unless there were material changes in circumstances. A note from Lord Reading at the end of the memorandum says:
I agree. We are at present unpopular enough with the Japanese without trying to exert further pressure which would be likely to cause the maximum of resentment for the minimum of advantage.
I hope that the Minister will not say that, because the articles were drawn up so long ago, they cannot be revisited. If there is a chance that they are still legally binding, we should pursue the matter. After all, we have taken that stance on the issues of war criminals and gold in Switzerland, saying that they need to be pursued to the end. However remote the chance, all legal avenues should be explored.
The Prime Minister's visit to Japan in January afforded an opportunity to promote a more positive image. I warmly support that, and hope that progress will continue. The Prime Minister rightly raised the issue of the treatment of prisoners of war. He was given an expression of deep remorse and heartfelt apology to those who suffered in the second world war, but that apology failed to meet the requirements of the former prisoners of war, which I support.
The apology was not given in public or in this country, and it was published here in The Sun, hardly the most dignified vehicle for such a declaration. It was not meaningful, because the critical words were not used. Previous apologies have not been viewed as definitive, principally because the wording has never been acceptable in relation to the scale of the atrocities that took place. Despite the sincerity of those who have uttered those apologies, they have consistently been undermined by dissidents from within the Japanese hierarchy.
I urge the Foreign Office to do all that it can in the weeks ahead to make progress with the apology issue. What better way to celebrate the emperor's visit and move forward in relations with Japan than to have a proper apology? To overcome the problem of the emperor having to use his own words to make what would, I suppose, be regarded as a political statement, I urge the Japanese Government to permit him to deliver a clear, public apology in this country on their behalf. That would give the former prisoners of war what they are seeking.
I urge the Minister and the Foreign Secretary not to say that the issue is resolved but to use the visit as a focus for diplomatic action, to try to re-examine the legal issues

about compensation and to seek the necessary apology, so that we can celebrate the visit and satisfy the prisoners of war who have been waiting so many years for justice.

Mr. David Faber: Since the Jopling reforms initiated these Wednesday morning debates, there has been some scepticism about their value, but we would all agree that today we have seen the House at its very best, and have had contributions of the highest quality, without a single exception.
This is an important and timely debate, and I, too, congratulate the hon. Member for Reading, East (Jane Griffiths), not only on securing it but on the sensitive and knowledgeable manner in which she introduced it.
Last December saw the 56th anniversary of the outbreak of war in the Pacific. I strongly endorse all the moving tributes paid this morning to all those who fought so bravely in Asia, whose courage resulted in the lasting peace and stability that we enjoy today.
My hon. Friend the Member for Rayleigh (Dr. Clark) movingly reminded us about conditions in the camps, and I echo the tribute paid by my hon. Friend the Member for Witney (Mr. Woodward) to the veterans' groups. In particular, we remember those who paid the ultimate price for peace, together with those whose military service regrettably led to their imprisonment.
The hon. Members for Brighton, Pavilion (Mr. Lepper) and for Winchester (Mr. Oaten) mentioned the recent claim by veterans that they have uncovered documentary evidence in the Public Record Office at Kew that merits a new challenge to the compensation paid to surviving prisoners under the 1951 San Fransico treaty of peace, which ended the state of war between the United Kingdom and Japan. At British insistence, the treaty specifically provided for compensation for former prisoners of war, and rightly acknowledged the brutal treatment to which allied service personnel in the far east had been subjected.
Article 14(a) of the treaty states:
Japan should pay reparations to the Allied Powers for the damage and suffering caused by it during the war".
It gave the allies the right to seize and to dispose of Japanese property within their jurisdiction, although, as the hon. Member for Reading, East and others have said, that was done according to financial prosperity.
The proceeds of Japan's overseas investments were taken in settlement of claims for compensation. The United Kingdom received about £3 million and a further £1.6 million from the International Red Cross, which had in turn received £4.5 million from the Japanese Government. Former military prisoners each received £76 10s, which works out at about £1,000 in today's money, and civilian detainees received £43, which is approximately £560. However inadequate the terms may have appeared to be—they still appear inadequate—it was accepted that the Japanese had discharged their obligations. The treaty was reckoned to be the final word on compensation and was regarded as the legal fulfilment of Japan's responsibilities.
Article 26 of the 1951 treaty states, however, that, should Japan make a peace settlement or war claims settlement with any state granting that state greater advantages than those provided by that treaty, those advantages should be extended to the parties to it.


As the hon. Member for Winchester said, the new evidence details a reported arrangement between Switzerland and Japan under which Swiss nationals were compensated at a higher rate than those of allied countries. A story in The Observer on 18 January referred to the 1955 bilateral arrangement between the countries. The documents at the PRO have been interpreted as showing that the terms of the Swiss agreement are better than those of the 1951 treaty, which apply to the United Kingdom. Similar claims have been made about the agreement with Burma, which must be closely examined by the Government. The Foreign Office is conducting research on the documents, which we welcome, and hon. Members look forward to hearing when the Minister expects to announce the findings.
I should like the Minister to deal with a number of specific points. What factors are the Foreign Office using to determine the relative benefits of the Swiss, the Burmese and the British arrangements? How will officials determine their comparable worth in money terms after so many years? Having done so, will he say whether the terms of the Swiss agreement are better or worse than those offered to the United Kingdom? Do the Government consider that settlement to be a peace settlement or a war claims settlement?
We welcome the Government's acting quickly on preliminary legal advice. Although we heard on the radio this morning that that advice suggests that nothing has changed and that there will be no reopening of negotiations with Japan over payments, it would be extremely helpful if the Minister gave further details of what the advice suggests, from whom it came and when he hopes to receive a final opinion. There may be a problem over the time limit within which legal challenges are usually made. What advice have the Government received about the principle of extinctive prescription as it applies in international law?
Conservative Ministers discussed former prisoners of war with their Japanese counterparts, to express concern and to explore possibilities for alternative nongovernmental initiatives. Although we could not become directly involved in legal cases brought by individuals or organisations, our embassy in Tokyo has always helped ex-prisoners of war by offering advice and by arranging meetings.
In June 1997, the present Minister said:
Strong feelings, however, continue in this country and we are in close touch with the Japanese Government about these concerns."—[Official Report, 2 June 1997; Vol. 295, c. 86.]
Can he say more about any specific initiatives that have been undertaken to build on the important dialogue which we established previously, and what non-governmental initiatives have been pursued with the Japanese Government since 1 May?
As my hon. Friend the Member for Teignbridge (Mr. Nicholls) said, the previous Government drew the attention of the Japanese Government to this issue repeatedly and at the highest level. The former Prime Minister, my right hon. Friend the Member for Huntingdon (Mr. Major), broke with tradition and raised the plight of veterans with successive Japanese Prime Ministers. His visit to Japan in September 1993 marked a new stage in the discussions.
Prime Minister Hosokawa for the first time gave a full and detailed personal apology for the treatment of prisoners of the Japanese. He expressed his
deep remorse and apologies for the fact that Japanese past actions had inflicted deep wounds on many people including former prisoners of war".
Prime Minister Murayama made an official statement on VJ day, apparently with the blessing of his Cabinet, in which he expressed his "heartfelt apology" and "feelings of deep remorse" for the damage and suffering caused to many people of many countries, including former British prisoners of war. Hon. Members will recall, however, the confusion about whether that apology had been made collectively on behalf of the cabinet or was personal.
During his visit to Japan in January, the Prime Minister raised the treatment of prisoners of war with Prime Minister Hashimoto, who gave
an expression of deep remorse and heartfelt apology to people who suffered in the Second World War".
I whole-heartedly welcome that statement, but regret the confusion about whether it was collective and made on behalf of the Cabinet, or made personally by the Prime Minister. It should be considered as natural progress on top of previous apologies as a result of the work of successive Governments.
The Minister should clarify the outcome of the Prime Minister's discussions in Japan about prisoner of war compensation and what plans there are to discuss the matter again with the Japanese Government before the state visit by Emperor Akihito next month.
Conservative Members continue to respect the feelings of former prisoners of war, including those who seek compensation, and feel that the Japanese have not yet demonstrated clearly enough the sincerity of their apologies. As Jeremy Hanley, the former Foreign Office Minister, made clear:
We have the greatest sympathy with those who suffered such terrible treatment at Japanese hands during the war, so we have not closed the book on the problem."—[Official Report, 4 December 1996; Vol. 286, c. 972.]
I welcome the emergence of new attitudes. In government, we sought to establish what might be done to help former prisoners, and although we did not achieve all that they wanted, I am proud that much progress was made and a greater understanding brought about. I welcome the good relations between our two countries, and have no doubt that progress will continue to be made under the new Government.

The Minister of State, Foreign and Commonwealth Office (Mr. Derek Fatchett): We have had an important debate, in which the House has done itself a great favour. The contributions of the eight Back Benchers and the hon. Member for Westbury (Mr. Faber) were of high standard and dealt with a sensitive issue in an understanding way. I congratulate my hon. Friend the Member for Reading, East (Jane Griffiths) on initiating the debate. Few of us can challenge her knowledge of Japan and of the Japanese language, and we were impressed by the way in which she set out the agenda at the start of the debate.
I compliment my hon. Friend the Member for Rotherham (Mr. MacShane), my parliamentary private secretary, who was involved in the establishment of an


all-party group, and thank the hon. Member for Winchester (Mr. Oaten) for his remarks about my hon. Friend.
There is only one point at which to begin my response to the debate. Hon. Members pay deep tribute to those who fought, suffered and died on behalf of their country in the far east during the second world war. Their sacrifice enabled each of us to enjoy the peace and prosperity which, sadly, we too often take for granted. Their courage has left an indelible memorial in the long annals of our country's history. We cannot and should never forget the pain and suffering that they endured so that the rest of us could enjoy freedom.
That applies particularly to those who were held captive by the Japanese, whether as prisoners of war or as civilian internees. All hon. Members who spoke were powerfully eloquent in describing the cruelty and brutality of the treatment of our fellow citizens who were taken prisoner by an enemy who showed little respect for normal humanitarian standards. While in recent years we have rightly condemned the atrocities in places such as Bosnia, we should always remember the appalling treatment that our people suffered in captivity in the far east. We did that this morning, and I am pleased to add my words to those of Government and Opposition Members.
It is against that background that, when I came into office last May, one of my first decisions was to invite Arthur Titherington and Keith Martin to discuss their concerns with me. Quite simply, we wanted to find, within the legal constraints which we inherited and to which the hon. Member for Westbury referred, how we could most effectively help the former prisoners in the far east. At the same time, we initiated a series of discussions with the Japanese Government to explore all possibilities. The hon. Gentleman asked me to report back on the talks, and I am willing to do so. He will understand that some of the discussions are necessarily confidential, but I will outline their nature.
It may be useful if I explain the extent of the discussions. I have raised the issue with successive Japanese Foreign Ministers and with the current and previous ambassadors, as has my right hon. Friend the Foreign Secretary. I took the opportunity when I visited Japan last November to raise them again. Senior officials, including the current and the immediately previous permanent secretaries at the Foreign Office, have held talks with their counterparts in Japan on exactly these issues. As the hon. Member for Westbury and others noted, my right hon. Friend the Prime Minister also raised our concerns.
I hope that the House accepts that, during the year in which we have been in office, we have been active on the issue and expressed our concerns. We do not claim any party political virtue for that, because we recognise that that path was also taken by the previous Government, but we wanted to work to see what progress we could make.
During the discussions, the Japanese Government told us that they appreciated the sensitivity of the matter. They rightly saw it as the only outstanding difficulty in our bilateral relationship. They rightly pointed out that many individuals were executed or punished for their cruel behaviour in the camps as a result of the war crimes tribunals after the war. They pointed out that the question of compensation was legally settled by the San Francisco peace treaty of 1951, to which hon. Members have

referred. They also said in all those meetings that they were not prepared to reopen the treaty on compensation but they expressed a strong desire to promote reconciliation between Britain and Japan and with formers prisoners of war.

Mr. Nicholls: rose—

Mr. Fatchett: I apologise to the hon. Gentleman, but I should like to continue. If time becomes available, I will give way.
It may be useful to make a short digression to respond to the points made about the legal situation. The hon. Member for Westbury in particular asked several questions. Individual members of the Japanese Labour Camp Survivors Association and the Association of British Civilian Internees Far East Region, supported by their associations, are suing the Japanese Government in the Japanese courts for compensation. The Government, like our predecessors, have no desire to obstruct such action by individuals. To put that more positively, our embassy in Tokyo has given assistance during the visits of the various organisations and individuals to Japan.
ABCIFER has recently produced documents relating to the 1955 agreement between Japan and Switzerland. It is claimed that they show that the Government of the United Kingdom should reopen the San Francisco peace treaty to secure improved compensation. Several hon. Members mentioned that. This is a highly complex matter. The Department has been engaged in thorough research of the historical facts and legal implications. Our researches continue, but it might be useful to bring the House up to date with some of the background information.
I confirm that it appears that in 1955 a conscious policy decision was taken by the then Conservative Government Minister Lord Reading not to reopen the question of compensation with the Japanese on the basis of the Swiss agreement. We make no party political point out of that. It is on the record in one of the documents that former prisoners of war have brought to our attention. It seems that the decision was based on the considerable legal and practical difficulties, as well as on what Lord Reading called, in the document to which the hon. Member for Winchester referred, the fragile state of the Japanese economy at the time.
It does not follow that, because officials thought it legally possible to reopen the question then, that remains the case. The preliminary legal advice that I have received is that it is not now open to the Government to reopen the provisions of the peace treaty on that basis. However, as I said to Keith Martin and Arthur Titherington last night, we will willingly make our preliminary legal advice available to them. I have promised to write to them on that basis. Because of the interest in the House, I will be happy to write to hon. Members setting it out. That information should be, and will be, in the public domain.
I have described the intensity and seriousness of our discussions with the Japanese Government. I do not believe that any of the allied Governments involved in the war in the far east have held such intensive discussions with the Japanese Government on the position of their citizens who were held captive. As I said, the Japanese ruled out further compensation but showed themselves alive to the sensitivities involved. As the talks proceeded, I kept Arthur Titherington, Keith Martin and others


informed, because I thought that that was the right thing to do. I assure the House that, whenever opportunities arise, we will continue to raise our concerns with the Japanese Government.
Those efforts culminated in the Prime Minister's discussions with his Japanese counterpart, Mr. Hashimoto, when he visited Tokyo in January. In the end, most of their bilateral meeting was devoted to this one issue. In response to our representations, Mr. Hashimoto made a formal statement on behalf of his Government expressing
his feelings of deep remorse and heartfelt apology for the tremendous damage and suffering of that time.
I have quoted the exact words. It seems to us impossible to see that as other than an official statement of apology by the Japanese Government. On that basis, we, with others such as the Royal British Legion, have welcomed and accepted it as an apology.
Mr. Hashimoto also told the Prime Minister that, although the Japanese Government could not pay further compensation, they were prepared to use their resources to promote reconciliation. They would finance pilgrimage by British veterans to the war cemeteries of south-east Asia, give scholarships to the grandchildren of former prisoners, and expand programmes of visits by formers prisoners and their families to Japan.
In making that statement to my right hon. Friend, Mr. Hashimoto was responding to the concerns felt by many ordinary people in this country, so when a British newspaper suggested that he write a signed article for it, my right hon. Friend urged Mr. Hashimoto to use the opportunity to repeat what had been said in their private meeting, directly to the British people. Mr. Hashimoto subsequently ran into some criticism in Japan for writing in a British newspaper, but he has confirmed to my right hon. Friend that he was glad to have done so. As he said in his article, his action
will not bring back the dead. But I hope the British people will see it in the spirit in which it is intended—one of reconciliation and peace and hopes for the future.
These issues take us back to what is for many a tender and difficult past. As a Government, we have been trying to work with the Japanese Government in relation to that past. We shall continue our efforts, in the clear knowledge that not one citizen of this country or Member of Parliament forgets the sacrifice that was made by the prisoners of war in the far east.

Alcohol Misuse

Mrs. Marion Roe: As vice-chairman of both the all-party group on alcohol misuse and the Conservative health committee, I welcome this opportunity to bring the issue of alcohol misuse to the attention of the House. I have long been aware of the role played by alcohol misuse in public health and the health and social costs to individuals, families and business, not to mention the cost to our health and social services in picking up the pieces.
Alcohol is an extremely complex policy area, not least because it is, as the Royal College of Psychiatrists puts it, "our favourite drug". I accept the drinks industry's argument that many people drink without causing a problem for themselves or for others, but my experience as former Chairman of the Select Committee on Health, my contact with the local alcohol service in my constituency and my knowledge of the facts available from a range of national organisations tell me that there are many people who misuse alcohol and cause problems for society as a whole, but who do not see themselves as misusers.
I was pleased to see in the recently published Green Paper "Our Healthier Nation" that the Government are
"preparing a new strategy on alcohol to set out a practical framework for a responsible approach".
There is a little more detail than that, but I hope that the eventual White Paper will be used as an opportunity to tackle the whole range of alcohol-related problems in a strategic and co-ordinated way. Alcohol policy is not only about how much individuals drink and whether they are below the recommended safe levels. That forms an essential part of the strategy, but it is only part of the jigsaw. The jigsaw needs to include the whole range of alcohol-related harm and the whole range of solutions. It should address the impact that drinking can have on families, its contribution to violence, its role in accidents and its net impact on the efficiency of British industry. Let me highlight just a few of the issues that are at stake.
Children, as is so often the case, are the biggest losers when alcohol problems occur, both as drinkers themselves and as sufferers from the effects of a parent's drinking. Educating young people about alcohol and how to drink safely is of the greatest importance, especially in light of increasing levels of drinking among 11 to 15-year-olds and, it would appear, increasing levels of harm.
I was perturbed to read of a study published in the British Medical Journal conducted by Dr. Joan Robson, a consultant in accident and emergency at the Royal Liverpool Children's hospital. Dr. Robson monitored the accident and emergency department for 12 months; in that time, about 200 children and adolescents under the influence of alcohol were brought in requiring either resuscitation after a large overdose of alcohol, or treatment for injuries sustained in assaults or accidents while they were intoxicated. Similar results have been reported by studies in hospitals throughout the country.
Finding the most effective way of teaching young people about alcohol should be a priority, given how easily they can get hold of it to experiment. The example set by adults around them is also important for teaching children and teenagers how to use alcohol, especially as


research has shown that the children of parents who drink sensibly or moderately are more likely to develop less risky patterns of drinking behaviour themselves.
Many children suffer because of a parent's drinking or the drinking of other adults in their life. Before Christmas, hon. Members may have seen some of the publicity for two excellent reports on the children of problem drinkers, by Alcohol Concern and Childline. The two charities point to the fact that nearly 1 million children are living with a parent whose drinking has reached harmful or risky levels.
Some of those children are coping without help with parents who abuse them physically or sexually, neglect them emotionally, or fail to feed and clothe them properly. Those children often have nowhere to turn and they feel to blame for what is happening; inevitably, that adversely affects their own behaviour and emotional development. Helping those children and their parents requires a multi-agency approach: local authorities, health professionals, teachers and alcohol service providers, to name but a few, are the key players.
Domestic violence is another example of an issue that is often alcohol-related, but where the alcohol factor is often overlooked or else not directly addressed, and a wide range of agencies need to be involved to develop an effective joint approach. Violence against women has been highlighted by the Cabinet Sub-Committee on Women as a priority area for action. Alcohol, which is a factor in about 40 per cent. of domestic violence incidents, should be taken into account when considering what action to take, but discussions about alcohol's role in domestic violence—or in any of the other problems that I am highlighting—should also be conducted with one eye on the bigger picture.
A strategic approach would look at the issue of violence against a partner or relative in conjunction with all the other issues, such as the impact on children of a parent's drinking. It would also look at the financial and work problems that alcohol misuse can bring to a problem drinker and their family; and the availability of specialist counselling and treatment services for the drinker and support for the family.
Mental health has rightly been identified in the public health Green Paper as a priority area for action. The role of alcohol misuse in depression and suicide—particularly among heavy-drinking young men—is well documented and should be addressed in suicide prevention activities. The mental health of those around a problem drinker must also be considered. I have already talked about the children of problem drinkers and the impact on their emotional development, but other family members who suffer violence, stress or exhaustion as a result of an individual's alcohol problem are an extremely important group. Their mental health, as well as the mental health of the drinker, is at great risk.
Social exclusion is another important problem being tackled by the Government. In assisting individuals to live healthier lives, to participate in society and to improve their own economic and social circumstances, issues such as alcohol misuse need to be tackled. With one in 20 adults in Britain dependent on alcohol and 2 million people drinking at risky levels, everyone needs to have access to high-quality services that can help people to combat an alcohol problem, look at the underlying problems that lead them to misuse alcohol and support their families through a difficult time.
I have strong links with the Hertfordshire Alcohol Problems Advisory Service—HAPAS—in my constituency and am pleased to serve as vice-president to the organisation. When I visit HAPAS, I am always impressed by the range and quality of the services that it offers. The dedication of the staff and the many volunteers who work with HAPAS is commendable, especially as they are not working with an easy issue. They have to spend a lot of time trying to persuade health and local authorities and probation and prison services to fund not only the provision of counselling and treatment services for problem drinkers but preventive and educational activities to reduce alcohol-related harm.
While many local purchasers understand the importance of tackling alcohol problems, they inevitably have restricted resources with which to address a whole range of issues. However, a powerful joint statement issued in February by the Association of Directors of Social Services, the NHS confederation, the Association of Chief Officers of Probation, and Alcohol Concern clearly shows that those organisations recognise the impact of alcohol misuse and the consequent drain on community resources. The statement calls for a cross-governmental co-ordinated strategy to provide a framework for the joint planning and implementation of local alcohol strategies.
Alcohol misuse features largely in another target area identified in the public health Green Paper—accidents. We hear a lot in the media about drink-drive accidents, and I am very pleased that the Government are consulting on new measures to reduce further the number of deaths and injuries from drink-driving. However, we hear very little about the major role that alcohol plays in other accidents. For example, alcohol is involved in 26 per cent. of drownings, 39 per cent. of deaths in fires and 25 per cent. of workplace accidents.
If one were to extend action on accidents to include injuries, it would become obvious that the role of alcohol was even bigger. I have mentioned the alcohol-related injuries that arise in many cases of domestic violence. Another good example is the role that alcohol plays in facial injuries. Recently, the British Association of Maxillo-Facial Surgeons launched a campaign to highlight the number of serious, and often permanent, facial injuries caused by excess alcohol. Its survey shows that nearly 70,000 people a year suffer injuries to their face because of alcohol—some from falling while drunk, others from attacks by someone who is drunk, often with a broken beer-glass. In addition to the disfiguring scars, nerve damage and lasting psychological effects on their lives, the costs to the health service of treating those injured is high.
I hope that, in targeting accidents as an area of activity, the Government will take account of the role of alcohol, but I also hope that the fact that alcohol has such a big role in accidents, violence and mental health, not to mention social exclusion, will lead the Government to put their weight behind developing and implementing a worthwhile, really effective alcohol strategy, instead of simply conducting a paper exercise that will have no real impact.
In putting together the pieces of the alcohol policy jigsaw, there are very many key players whose contribution is essential but who need to be co-ordinated both locally and nationally. Jointly, they need to decide where the most impact can be made and what the main


objectives of an alcohol strategy should be. Separately, they need to acknowledge the seriousness of alcohol problems and make a commitment to working together toward agreed aims.
I include the Government in that equation. About 11 Government Departments have an interest in alcohol issues. The obvious ones are the Departments of Health and of Social Security, the Home Office and the Department for Education and Employment, but there is also the Treasury, which is responsible for alcohol duty; the Department of the Environment, Transport and the Regions, which has an interest in reducing drink-driving; the Department for Culture, Media and Sport, which has an interest in sponsorship and advertising; and the Department of Trade and Industry, which has an interest in the impact on business of alcohol problems. In developing alcohol policy, there must be co-ordination across Government, with a view to reducing the health and social costs of alcohol problems while taking account of industry and tax revenue concerns.
As work begins to develop a new strategy on alcohol, as promised in the Green Paper, it is important for the Government to recognise that half-measures will not be good enough. Fiddling around at the edges of alcohol-related problems will not make a significant difference. Not only do properly considered and constructed objectives need to be established, but the means of achieving them, and clarity about who will be given the lead in achieving them, are essential.
The obvious parallel to this process is found in the structures set up under the "Tackling Drugs Together" initiative, which are being continued in the new drugs strategy launched on Monday 27 April, "Tackling Drugs to Build a Better Britain". The experience of "Tackling Drugs Together" proves that progress can be made on such an issue. Clear objectives with a time scale were set, support and guidance from the centre were forthcoming, and the necessary resources were provided. The Government's high-profile commitment to "Tackling Drugs Together" resulted in an equal level of commitment from all the key agencies at local level that became active members of the local drug action teams set up to drive the work forward. Those teams—with members from, among other sectors, the police, probation, health and local authorities—have been, and will continue to be, instrumental in achieving progress.
However, while alcohol has been given a minor mention in the new drugs strategy, but specific action on alcohol lags far behind that on drugs. The majority of drug action teams decided some time ago to include alcohol in their brief. They did so because their members recognise the level of problems that alcohol causes and the need to address those problems in the multi-agency way that the drug action team provides for.
Adding work on alcohol to the work of drug action teams is better than nothing, but why should alcohol always be tacked on to drugs? Some areas of education and treatment overlap, but there are very many areas where there is little or no overlap, and where different approaches are needed. The Hertfordshire drug action team in my constituency is a case in point. While welcoming the fact that it has embraced alcohol in its structure and work, the local alcohol service, HAPAS, has

told me that it has a major concern about the lack of firm national direction on alcohol, and the lack of formal support for the alcohol work that is being undertaken.
If the existing drug structures are to be used to address alcohol issues, the process needs to be done properly, with alcohol-specific objectives set at national level to take account of priority areas of activity, and evidence of what works. Teams tackling alcohol need to be provided with the necessary information, support and guidance on alcohol to do the job. Finally, they need to have the all-important backing that comes from explicit Government commitment as well as the necessary resources to make real progress. For drugs, that was forthcoming in the high-profile appointment of a drugs tsar. I ask the Minister: will there be a similar high-level appointment for alcohol?
Hopefully, with the Government's new commitment to developing a national strategy on alcohol, we shall see some long-overdue attention being paid to alcohol problems. However, it would be all too easy for the present Government to pay lip service to tackling alcohol misuse in all its forms, but not to come up with any real commitment or action to reduce the great amount of harm caused by alcohol in our society.

The Minister for Public Health (Ms Tessa Jowell): I am grateful to the hon. Member for Broxbourne (Mrs. Roe) for raising this important issue, which the Government take very seriously indeed. In less than a year since taking office, the Government have made considerable progress; moreover, we have already marked out the scope of development to come. There is an enormous amount of common ground between us, in the analysis of the problems and in our views on the nature of the solutions needed to tackle alcohol misuse effectively.
Alcohol misuse is a significant public health issue. We treat it as such now, and shall continue to do so. However, we are not interested in depriving of their drink millions of people whose moderate consumption causes no harm to themselves, their families or society. If policies to combat abuse are to be effective, we need widespread public support. There is no place for crusading zealotry against alcohol as such.
In dealing with such a complex subject, we need a balanced, realistic, sensible and practical approach to policies on alcohol. We need to address the harm that it causes, not the substance; that means no nannying lectures. We must recognise that the action that the hon. Member for Broxbourne proposed so clearly will come about not only as a result of the right type of partnership, led by Government, delivered locally, but as a result of a high level of individual understanding about the difference between sensible drinking and alcohol abuse.
The hon. Member for Broxbourne is absolutely right when she identifies the issue as one of those wicked, cross-Government issues. At least a dozen different Departments have responsibilities that are relevant to alcohol. No single Government Department can take action on it without immediately affecting the interests of other Departments. We aim to draw all those interests together, into a more coherent framework, and to tackle alcohol abuse on a more consistent basis across Government, recognising that it is, in essence, a cross-departmental concern.
That is what we meant in the Green Paper "Our Healthier Nation", when we said that we were preparing a new strategy on alcohol to set out a practical framework for a responsible approach, harnessing the resources of Government to deliver the range of action that is necessary for a meaningful and effective approach to alcohol abuse.
We have already made a significant start. When we came to power, the alcopops problem was reaching a new pitch of public concern. The Home Secretary promptly took action and established an interdepartmental ministerial group under the chairmanship of the Under-Secretary of State for the Home Department, the hon. Member for Knowsley, North and Sefton, East (Mr. Howarth), to tackle not just the problem of alcopops but the under-age misuse of alcohol in general. The hon. Lady gave us the figures behind the real anxiety about the increase in drinking among very young children. Let me add to her list of evidence by saying that the Health Education Authority survey of 1996 found that almost one in eight of all 13 to 14-year olds and half of all 15 to 16-year-olds who usually drink at least once a month reported having felt drunk in the previous month.
We should not underestimate the significance of this problem. Our success will lie in recognising that we must tackle the problem, not the substance. We must focus on the misuse of alcohol, not on drinking generally.
I am pleased to say that the inter-ministerial group on which I represent the Department of Health has had a significant impact, with an encouraging response from the industry. The revised Portman Group code of practice on the naming, packaging and merchandising of alcoholic drinks, launched last July, took on board our suggestions for an additional range of controls. To reinforce this self-regulation by the industry, we also announced an additional package of complementary measures, including measures to allow the police to confiscate alcohol from people under the age of 18 drinking in public, and the creation of an offence of adults buying alcohol from a shop or off-licence at the request of an unsupervised youngster.
The ministerial group will review progress later in the spring and again in the autumn, after some of the industry's self-regulatory measures have been given time to operate. I refer, for instance, to the revised code of practice and the revamped proof of age card. If the results do not show that significant progress is being made in tackling the problems that we have identified, the Government will act—we have made that clear to the industry.
That is just one example of cross-departmental work in action. In addition, other Government Departments are engaged in major new work relating to alcohol. The Department of the Environment, Transport and the Regions issued a consultation paper on drink-driving in February, while Customs and Excise recently completed a review of alcohol and tobacco fraud. There has also been considerable interdepartmental co-operation with the social exclusion unit, as it consulted on its project to reduce the number of people sleeping rough, many of whom have substance misuse problems, to as near zero as possible.
In the Department of Health, too, we are taking forward a wide range of measures that reflect the importance which ministerial colleagues and I attach to alcohol

misuse as a major public health issue. As the hon. Lady said, "Our Healthier Nation" identified four proposed priority areas: heart disease and stroke, accidents, cancer and mental health. Alcohol is recognised as a significant factor in all those priority areas, and action to reduce their impact, at local level supported by Government leadership, must inevitably involve reductions in the alcohol misuse that so often contributes to them.
I endorse the hon. Lady's comments about accidents. I was delighted to support the launch of the campaign by the Maxillo-Facial Surgeons to alert people to the risks of facial injury through alcohol misuse. I pay tribute to the work that that organisation has done to raise public awareness of the issue.
The Green Paper is adamant that we must not simply focus on disease; we must get to grips with the underlying causes of the diseases that will be represented in headline targets. We must also encourage local areas to identify their own priorities for action. Only they can know what the key issues are for them. We have to strike the right balance between a clear national framework and local action fitting in with local needs and priorities. That will enable us to get the public health strategy right and to engage a range of partnerships and alliances to translate promises into practical action. I believe that a number of local areas will want to set local targets for the reduction of alcohol misuse.
We are also establishing 11 health action zones—the Secretary of State announced them two weeks ago. They will comprise local partnerships between the health service, local councils, local businesses and voluntary organisations. The idea is to get rid of the bureaucratic boundaries that so often impede the effective delivery of health care and action to tackle health inequalities. In short, we want to tackle local problems by means of local partnerships in the health action zones. That is why we have provided £5.3 million for the coming year to promote joint working, with a promise of a further £30 million for the next financial year.
On the services side, we already have work in hand that seeks to respond to the repeated calls from the field for additional support to suppliers and commissioners of local alcohol services. We are attempting to do this in three ways: first, through the development and dissemination of alcohol commissioning guidance which we hope to publish this summer—thereby meeting a demand from local commissioners. Secondly, and associated with that, we shall publish a review of the effectiveness of treatment for alcohol problems which we hope will provide a further useful resource for commissioners. In other words, we want to show what works in practice and what has proved to be effective. Finally, the Substance Misuse Advisory Service, which became fully operational from October 1997, will mean that, for the first time, alcohol and drugs will be equally treated in terms of the advice on key matters available to workers in this area.
We are also developing policy on the difficult issue of dual diagnosis—a source of major concern to those working in the field. I refer to the concurrent existence of a substance misuse disorder and one or more psychiatric disorders. Such complex problems do not fit conveniently into the administrative boxes that we so often establish to tackle them. It is said that joined-up problems need joined-up solutions—that is what we are determined to achieve.


Money from the 1998-99 drug and alcohol specific grant will be available to fund demonstration projects on dual diagnosis. From them, we hope to develop in due course guidance for local authorities and health authorities on how best to tackle their joint responsibilities for this group of problem drinkers.
I can also reassure the hon. Lady: the Government's new drugs strategy, launched on Monday, confirms that alcohol will be dealt with under that strategy as appropriate—once again, looking for co-operative solutions to associated problems.
As "Our Healthier Nation" stressed, partnership is the way to make lasting progress. The healthy schools initiative and the forthcoming healthy workplaces initiative, both of which were outlined in the Green Paper, will help us to tackle alcohol misuse in the contexts of domestic violence and the workplace, and among children.
We see important progress being achieved through partnership with the alcohol industry. We intend to work with, not against, the industry. That is why I was delighted to join the Portman group in launching its new campaign supporting the Government's sensible drinking messages, and why last week I was delighted to support the industry's unit labelling initiative, which is complementary to the Government's approach on sensible drinking.
In the Green Paper, we intend to set out a framework that represents the cross-departmental approach to tackling alcohol misuse, and emphasises the importance of central Government and local partnerships working together to enable a coherent strategy to work. I hope that I have made it clear that the days of demarcation disputes—

Mr. Deputy Speaker (Mr. Michael Lord): Order. We must now move on to the next debate.

Lockerbie

1 pm

Mr. Tam Dalyell: It is without a smidgen of a blush that I accept my luck in Madam Speaker's ballot for the 14th time and raise the matter of Lockerbie and Libyan sanctions.
The British relatives of the Lockerbie victims are not asking for money. They are asking for the truth. Having come to know them well over seven years, I believe that they will go on asking until the last breath in their own bodies. Were we in their position, my hon. Friend the Minister and I would do the same. Knowing my hon. Friend, I am sure that he would not walk away in the circumstances, had he lost a son or a daughter, a brother or a sister.
We are the prime movers, with the United States, of sanctions. Our support for sanctions in the United Nations not only hits British industry—Babcock is only one of a number of firms that would not have paid off employees if the Libyan engineering orders had continued—but has a corrosive effect on our relations with many Arab and African countries. The Government are aware of the personal interest of President Mandela.
The matter has gone on for 10 long years. It will be the 10th anniversary of Lockerbie on 21 December 1998. How long do we let it go on? Is it to be my lifetime? Is it to be the lifetime of my hon. Friend the Minister, who is a younger man than I am? It is like the 30 years war, from 1618 to 1648. By 1648, people had forgotten the original causes. Indeed, by 1628 the policies that had begun it were somewhat obscure. How long must the matter of Lockerbie go on, and how are the rather cruel sanctions to be brought to an end?
What was said in Cairo to the Prime Minister? On 7 April, the Prime Minister replied to my question whether he would discuss with each of the host countries during his forthcoming middle east visit the extent to which Lockerbie and the case of WPC Yvonne Fletcher underlie United Nations sanctions against Libya. The Prime Minister replied:
Lockerbie is an issue of the greatest importance to this Government. During my visit to the Middle East I stressed the need for progress in implementing the relevant UN Security Council Resolutions.
What was said to him when he stressed that need? What did the Arabs say to him? My right hon. Friend continued:
They relate to Lockerbie, not to the murder of WPC Fletcher. That tragic case, with Lockerbie, is a major obstacle in our bilateral relations with Libya."—[Official Report, 27 April 1998; Vol. 311, c. 17.]
I have tabled the following question to the Home Secretary for 11 May:
Pursuant to his oral Answers of 30th March. Official Report, columns 887-8, on WPC Fletcher, what discussion he has had with the Secretary of State for Foreign and Commonwealth Affairs on those matters which have made the investigation into the murder of WPC Yvonne Fletcher more complex than was originally expected".
That refers to a question at column 887 of 30 March, when the Home Secretary stated in reply to me:
The current police investigation into the murder of Police Constable Yvonne Fletcher was established last year to inquire into the issues raised by the 'Dispatches' programme. The investigation, which has proved more complex than originally expected, involves extensive inquiries overseas and is continuing."—[Official Report, 30 March 1998; Vol. 309, c. 887.]


I saw Assistant Commissioner David Veness nine months ago. I have no doubt that Scotland Yard is doing its utmost. WPC Fletcher was one of its own, as Mr. Veness explained to me. When there is so much doubt, is it any basis for a continuing policy of sanctions? That is why I ask what the outcome was of the discussions between the Home Secretary and the Foreign Secretary.
Given my right hon. Friend the Foreign Secretary's comments at Mansion House last week, and given the simple fact that the only official inquiry so far into the Lockerbie bombing refused to allow evidence to be heard on the security background, will the Minister inform us when, if ever, the relatives may expect an impartial inquiry into the role and actions—or lack of them—by Government security services prior to, during and after the bombing? My hon. Friend the Minister worked closely with Neil Kinnock. Neil promised us that, and he was leader of the Labour party at the time.
Is the real problem the attitude of the Americans? It is high time that there was some kind of inquiry. People grow old. No inquiry would be complete without the participation of Oliver North of the Iran-Contra affair, his friend Buck Revell, the head of the FBI investigation into Lockerbie, and Vincent Cannistraro. Buck Revell's son was booked on the plane and did not travel. I believe that those Americans know much more than they have let on. After 10 years, key witnesses have a habit of being unable to give testimony, for various reasons. That is why an urgent public inquiry is needed.
On 20 March 1998, in the United Nations in New York, Sir John Weston made two statements in the debate on the Libyan sanctions, the first on behalf of the Government and the second on behalf of the European Union. Speaking on behalf of the Government, Sir John commented on the fairness of Scottish justice, and thereafter alluded to the Contempt of Court Act 1981. He seemed to be ignorant of the sheer size and volume of the media coverage in Scotland and of the fact that proceedings under the 1981 Act may be instigated only after the commencement of the trial. Why was not that point made?
In the same speech, Sir John went on to state that sanctions had not adversely affected Libyan financial, oil or commercial outputs or figures. In view of that and similar comments made by the US representative, do the Government still cling to their previous stance that sanctions are effective and are the only action liable to produce a response, after six years of failure?
Other countries do not respect sanctions. Only last week, Italian Trade Ministers were reported to have gone to Libya. I have not been able to check whether that is true, but I expect that our Government will know.
Given the recent travels of Dr. Jim Swire of the UK relatives group, accompanied by Professor Black, who had extensive meetings with the League of Arab States, the Organisation of African Unity, the Libyan leader and officials for the two accused, will the Government explain an almost total lack of willingness to communicate with the Libyan Government or to use some kind of communication to get out of the impasse?
I spoke last night to Robert Black, who is visiting Stellenbosch in South Africa. He said that the Libyan Government had stated previously that they would put
no obstacles in the way of their nationals going to trial.

The Libyan Government now say that they "positively welcome" their nationals going to trial in a third country. They have promised to
facilitate those arrangements and to do everything to achieve that end.
I received a copy of a letter written today by Dr. Swire to the Foreign Secretary—I have shown it to senior officials at the Foreign Office, and I apologise for the fact that I was not able to do so earlier. It states that present at the meetings were Mr. Abdul Ati Obeidi, Secretary at the Foreign Office, Libya; Mr. Zuwiy, Secretary of Justice, Libya; Mr. Orma Dorda, the Libyan permanent representative at the United Nations; and, crucially, Dr. Ibrahim Legwell, the lawyer representing the two Libyan suspects. The more important point is that they had an endorsing meeting with Colonel Gaddafi. Hitherto, it has been asked, "How do we know with what authority Libyan promises are made?" When the promise is made by Colonel Gaddafi himself, it is high time to accept Libya's assurances in good faith.
Given the Prime Minister's spokesman's assurances in the media that Lockerbie is a "very high priority" for the Government, will the Prime Minister inform the House when he might be able to see the Lockerbie relatives? I do not criticise the Prime Minister. I wrote to him when he became leader of the Labour party. I am one of the few hon. Members who remember Hugh Gaitskell, who died partly because everyone impinged on his time. Prime Ministers must be extremely selective about how they allocate their time. However, a promise has been given.
I refer also to the question that I asked on 21 April 1998 as to why the police inquiry had not interviewed Mr. Abolghasem Mesbahi, the Iranian defector. I asked also what approaches had been made to Gunter Rath, the state prosecutor in Frankfurt. As time is short, I refer hon. Members to the question and answer that appear in Hansard of 21 April 1998 at column 579.
On 20 March, Sir John Weston told the Lockerbie relatives that he was still operating on instructions from the previous Conservative Administration. When may Sir John expect some sort of briefing from this Government? One of the bereaved parents who went to New York, the Rev. John Mosey, reported that Sir John said that,
in the absence of new instructions from the Government, he would continue to follow the line of the previous Administration.
Perhaps the Labour Government should move in a different direction. Will they at least talk to the Libyans? If we can talk to the extreme forces in Ireland, surely we can talk to Colonel Gaddafi.
Finally, I asked both Dr. Swire and Professor Black, "Do you think in your heart of hearts that the Libyans did it or had anything to do with it?" Both replied separately and said, "In our heart of hearts, no, the Libyans were not involved." They are not naive people. That is also my view—and I do not think that I am being naive, either.

The Minister of State, Foreign and Commonwealth Office (Mr. Derek Fatchett): My hon. Friend the Member for Linlithgow (Mr. Dalyell) said that this is the 14th time that he has raised this issue in the House. He provides us with a further opportunity to remember the 270 people who were killed at Lockerbie—259 on the plane and 11 on the ground—on that dreadful night


in December. We must always remember them as the true victims of the Lockerbie disaster. We must not allow history to be subverted in such a way as to forget the suffering inflicted upon the relatives of those 270 and upon the small community in Scotland that bore the brunt of those dreadful events.
The Lockerbie bombing was an act of terrorism and of murder. As my hon. Friend has said, the relatives of Lockerbie victims are looking for only one thing: justice. We know from experience that the best way of achieving justice is through the courts and the legal process. We must charge and bring to trial those who are accused of committing that crime. The best way of achieving justice is to have a trial, which will allow the accused to plead their innocence in front of a court.
When Labour came to office, my noble Friend the Lord Advocate reviewed the evidence available and decided that there was a case to be heard. He took that decision not as a politician, but as an eminent and respected lawyer and a man of high personal integrity. He took that decision because he believed that it was the only appropriate course of action in the light of the facts available to him.
Unfortunately, we have not had the opportunity to present those facts in court. There have been several versions of the Lockerbie events, but the Crown Prosecution Service would like to bring to court an as yet unseen version. However, the Libyans refuse to hand over the two individuals who have been charged with these dreadful offences. We have asked many times for those individuals to be tried in court, where they would have the opportunity to argue their innocence. Unfortunately, the Libyans have not co-operated.
My hon. Friend said that this episode had gone on for many years—he is absolutely right. It has gone on for too long. However, let us not, yet again, twist the responsibility for that delay. The Lockerbie bombing was an act of terrorism and murder, and those responsible for it should be tried properly. The Government believe that the most appropriate place for that to happen is in a Scottish court under the Scottish legal system.
My hon. Friend suggested that the Government may be influenced and controlled by the opinion of the United States. I confirm, without a trace of embarrassment, that there is a synthesis between United States and British opinion—it could hardly be otherwise, as we both wish to see justice done. However, above and beyond that consideration, I make a strong commitment to the fairness, integrity and openness of the Scottish legal system. What sort of precedent do we establish if we say that those who are charged with, and who may be responsible for, terrorist acts may choose the country in which they are tried? We would be introducing the national lottery into the judicial system and telling the accused, "Find a country and the right judge and jury, and you can get away with acts of terrorism."
All politicians who believe in democratic process and due process have a responsibility to ensure that a trial takes place in the country in which the terrorist act was committed, according to appropriate legal rules and systems. Scotland has that. As my hon. Friend knows, the Government have taken the initiative of highlighting the openness of the Scottish legal system internationally.
When we came to government, we invited the United Nations to examine the Scottish legal system. The legal experts nominated by the United Nations Secretary-General visited Scotland on 3 and 6 December 1997. Their report, which has been circulated as an official document to all Security Council members, concluded that the accused would receive a fair trial in Scotland. Let us not have any sense of embarrassment about that. The accused would receive a fair trial in Scotland, and it is the Government's view that that is the preferable place for the trial.
As my hon. Friend knows, we made the offer to the Arab League that it could send observers to examine the Scottish legal system. When I first went to Egypt as a Minister in the spring of last year, I met representatives of the Arab League in Cairo. The argument advanced to me then was that there was concern that the Scottish legal system would not provide a fair trial. It was said that that was why it was difficult for the Libyans to release the two accused. As I have said, an invitation was extended to the Arab League. Its representatives could have come to examine the notion and practice of a Scottish trial. That invitation was not accepted.
The Arab League has conclusive evidence from the United Nations that its legal experts believe that we have in Scotland, as we all know, a fair, open and just legal system. If the Arab League was determined in June 1997 that all that it wanted was reassurance about confidence in the Scottish legal system, it now has that reassurance. I say to the Arab League that its interest in the Lockerbie issue would be best explored and developed if it now took the opportunity to talk to the Libyan Government and to ask them to release to Scotland the two individuals who have been charged in connection with such terrible events.
My hon. Friend offered two possible alternatives to a free and fair trial in Scotland. First, he talked about the possibility of a third-country trial. The weakness of that alternative is that we have no guarantee that Libya will deliver the two accused. Nor do we have then any control over a precedent that allows a Government involved in acts of terrorism to decide where their agents will be tried in future. All right hon. and hon. Members will be fully aware that there are dangers in that precedent.
My hon. Friend referred to the possibility of a public inquiry on Lockerbie. He should be cautious on that, for he will prevent any possibility of Lockerbie families receiving the justice that they consider to be important. Any public inquiry established under the statutory provisions and powers that reside in the House will not have the authority to come to a judgment on criminal culpability. However, it will be a public inquiry that will make all the evidence available in public. In so doing, it will prevent any possibility of a fair and unprejudiced trial in the legal system at a future date.
A public inquiry would have the perverse effect—the opposite effect to that which my hon. Friend seeks—of ensuring that there was no possibility of bringing the two accused to trial in Scotland. For those reasons, we reject the notion that there should be a public inquiry.
My hon. Friend said that we should talk to the Libyans. We do talk to the Libyans. I shall give him some illustrations of what we have done to talk to them. We talk through our joint missions at the United Nations in New York. We talk to the Libyan interest section in London. My right hon. Friend the Foreign Secretary has


written to the Prime Minister equivalent in Libya and to the Libyan Foreign Minister. They have no doubts about our hopes and expectations. We have been in touch with them. We have offered the Libyans an opportunity to understand fully the position that the Government come from.

Mr. Dalyell: Is there an offer actually to meet at, say, Minister of State level, Libyan Ministers?

Mr. Fatchett: I am simply putting on the record the fact that we have had contact already.
My hon. Friend referred to the tragic case of Woman Police Constable Fletcher. I emphasise to him that the Metropolitan police are reviewing material evidence provided by the makers of a television documentary. They remain of the view that the shot that killed WPC Fletcher was fired from the Libyan people's bureau. Let us make no mistake about that. The Metropolitan police, subject to the evidence that relates to their review, still have one firm conclusion in mind.
My hon. Friend talked about the sanctions regime. There is often a danger in relating some of our concerns in general about sanctions to the position vis-a-vis Libya. The sanctions regime with Libya is much more restrictive than that which applies to Iraq, for example. Also, my hon. Friend should not relate the WPC Fletcher case to the position on sanctions. The fact is that the WPC Fletcher case is an important and damaging bilateral issue between the United Kingdom and Libya, but not one that is related to sanctions. The sanctions relate specifically to the wish of the international community for Libya to make available for trial the two people who have been accused in connection with the Lockerbie events.
My hon. Friend referred to the possibility of opening up greater trade with Libya. He then asked about sanctions in that context. I shall give some facts that may be useful in that regard. The Libyan Government enjoy extensive reserves, and there has been growth in Britain's exports to Libya as well as in Britain's imports from Libya. On trade, the Government have taken the position that was taken by the previous Government, that we shall not discourage—we shall certainly not encourage—trade with Libya. There is no question of the present sanctions regime being imposed on oil. Oil revenues go to the Libyan Government. Trade is there.
My hon. Friend, having said that we should open up trade to a greater extent, argued that, if there is to be more trade, it will be shown that sanctions are not working.

I think that sanctions have worked with Libya. My hon. Friend has a long and proud record of arguing for sanctions in certain circumstances. He was one of the first to argue that there should be sanctions against apartheid, and he was right to do so. My hon. Friend has not a principled but a practical objection to sanctions.
In that context, I believe that the sanctions against Libya have worked. They are not punitive on trade, but they have constrained the Libyan Government. We can take some satisfaction and confidence from the fact that sanctions have worked in such a way as to ensure that Libya's involvement in terrorism has been reduced over recent years. That is an important international objective that we seek to achieve.
My hon. Friend is right to continue to maintain an interest in the issue. He is right to do so because of the nature of the act and the deaths and suffering that were involved. My right hon. Friends the Prime Minister and the Foreign Secretary were right to say that the Government share concern about Lockerbie, as one of our major objectives and concerns. We share that concern, because we wish to see justice for the families of those who were killed and who suffered at Lockerbie. We want that justice. We believe that the best and only way for it to be achieved is by the Libyan Government freeing the two accused and releasing them to the United Kingdom, so that they can be tried in Scotland.
We have absolute faith in the Scottish legal system; we believe that it will offer a fair trial. We do not accept that we can allow a terrorist or a terrorist Government to decide the location for a trial. We have faith in the Scottish legal system, and we believe that that is the right way in which to proceed.

Mr. Dalyell: Could my hon. Friend factually explain what the Arabs in Cairo said to the Prime Minister on that issue?

Mr. Fatchett: My hon. Friend will know that there is no published text of meetings between Presidents and Prime Ministers, but I can tell him that the Lockerbie issue was discussed and that President Mubarak shared our concern that justice should be carried through and that those who are culpable should be brought to trial.
As I was saying, we believe that the best way to do that is by a trial in Scotland, and this Government will continue to work along those lines, with the relatives of those who were killed.

Palestinian Refugees

Mr. David Atkinson: Next month, Israel celebrates its 50th anniversary. It is being celebrated in Israel tomorrow because of the Jewish calendar. On 15 May 1948, the last British troops left Palestine, and Israel was proclaimed an independent state. Later that night, armies from the Arab states of Egypt, Syria, Jordan, Iraq and Libya, with a contingent from Saudi Arabia, invaded the new state. The war lasted eight months.
During that war, hundreds of thousands of Arabs left their villages in Israel, and many more were encouraged to leave or were expelled. The United Nations estimated that a total of 726,000 people sought refuge in neighbouring Arab countries. Displaced and destitute, they were sheltered in tented camps. In addition, some 585,000 Jews emigrated to Israel from Arab states between 1948 and 1972, similarly displaced and destitute. They were swiftly transferred from transit camps to absorption centres, and given fully integrated citizenship in a Jewish homeland.
The Palestinian refugees and their descendants have had no such swift return to their homeland. In December 1948, the UN General Assembly passed resolution 194, article 11 of which refers to a return to their homes at the earliest practical date, and compensation to be paid for the property of those who chose not to return. For them, the following year the UN General Assembly passed resolution 302 establishing the United Nations Relief and Works Agency for Palestinian Refugees in the Near East to provide emergency assistance, a mandate that has been renewed repeatedly ever since. The 17th mandate for UNRWA runs to the end of June next year.
A total of 3.4 million displaced Palestinians are now registered with UNRWA. The majority have lived in camps, of which there are now 59. Their tents have been replaced by breeze block walls and corrugated roofs, and they have been homeless and stateless for nearly 50 years. Their existence has done more than anything else to perpetuate conflict in the region, with political and military movements for the recovery of Palestinian rights leading to the establishment of the Palestine Liberation Organisation.
Over the years, the refugees, in exile and in the camps, have been the prime source of terrorism against Israel and the international community, and more recently of the intafada uprising in the occupied territories of the West Bank and Gaza. It must be clear to all, including the Israeli Government, that any middle east peace settlement that is unacceptable to the great majority of the Palestinian refugees will not endure.
For the past 10 years, I have been a rapporteur on the Palestinian refugee issue for the Parliamentary Assembly of the Council of Europe. I made fact-finding visits to the region in March 1988 and again in November 1990, which resulted in recommendations that were adopted by the Assembly and on which I reported to this House in Adjournment debates on 29 July 1988 and 28 March 1991.
As the House knows, the Oslo accords of 1993 provided for discussions between Israel and the Palestinians on the refugee issue once the interim period

of Palestinian self-government in Israel had begun, with a timetable for "final status" issues to be agreed by May 1999. Those negotiations have stalled since the Israeli elections of 1996. Following the visit by the American Secretary of State to the region last September, there have been hopes that the negotiations will resume. Those hopes have been boosted by the Prime Minister's recent visit and the summit that he has arranged in London next week.
I made a third visit on behalf of the Council of Europe at the same time as that of Madeleine Albright. The principal aim of my visit to Lebanon, Syria, Jordan, Israel and the Palestinian Authority was to establish the view of the refugees as well as that of the host countries on how they thought their future could be resolved.
Unlike the previous occasions, UNRWA could not arrange my programme, so I wrote to the Minister two weeks before my departure to seek the help of our embassies in the countries concerned. I have since written to him to thank him for the meetings and visits that transpired despite such short notice. I hope that he has passed on my appreciation to those concerned in Beirut, Damascus, Amman, Jerusalem and Tel Aviv.
I take this opportunity to record my personal thanks to them, because, without their assistance, the visit would not have achieved its aims, the report that transpired and its recommendations, which the Council of Europe Assembly adopted by an overwhelming majority in Strasbourg last Thursday. Our country is fortunate in being so well served by such resourceful and effective representatives.
From the large number of meetings I had with refugee leaders, camp committees, individual refugees, Ministers, UNRWA officials, members of the Knesset and of the Palestinian Council, and Crown Prince Hassan of Jordan, I was able to come to some clear, although obvious, conclusions. The first was that, after nearly 50 years, it will be politically and practically difficult—many will say, impossible—to implement UN resolution 194 proposing the right of return for all 4 million refugees to their original homes in Israel. I accept that that is unquestionably what the exiled Palestinians want; I also accept that Israel is equally adamant in refusing that demand.
If we are to make progress in ending the camps and offering the refugees permanent accommodation for the first time, not only for humanitarian reasons but as an essential step towards reducing a major source of tension in the middle east, a Palestinian state must be established.
Our Israeli observer colleagues in the Council of Europe have urged me to use the word "entity" in place of th word, "state". I have explained to them that an entity will not be sufficient to encourage the refugees to end their refugee status. Only a viable self-governing or sovereign state will establish their country—their "homeland"—and encourage them to give up their right to return to Israel. Only Israel can allow that. If it really wants a secure future in co-operation with its neighbours, there is no alternative but for it to assist in the establishment of a Palestinian state.
I worked on a kibbutz in northern Galilee within the range of Syrian guns on the Golan, and as a member of the Conservative Friends of Israel, and I am fully committed to a Jewish homeland within secure borders.


In February, Israel's last Prime Minister, joint Nobel peace prize winner Shimon Peres, told a Euro-Mediterranean round table in Strasbourg:
I support the creation of a Palestinian state. In order for Israel to remain Jewish, we do need a Palestinian state, and it is in our interest to help them to achieve it.
It will not be possible for such a Palestinian state, composed of much of the West Bank and Gaza, to absorb all 4 million refugees. During the course of our meetings, a number of other options became apparent, and realistic to propose to the refugees.
In addition to resettlement in a new Palestinian state, those options are: to remain in the host country where many have made lives for themselves and will be ready to accept compensation for not returning; to resettle in other countries both within and outside the region, in response to their offers of quotas; and to return to the Gulf states where applicable. There is a fifth option: for some to return to Israel. Hon. Members will recall that Israel has in the past agreed to the return of 100,000 refugees, and today accepts a quota and provides for the reunification of families.
In the debate in Strasbourg last week, I did not speak of the possible numbers that those options would involve. That is to be determined in the negotiations in which UNRWA and other agencies will have an important role to play. But I urged the funding, at a cost of $7 million, of a computerised database of all refugees registered with UNRWA following the successful completion of a pilot study for UNRWA and the Palestinian authority. Such a database would undoubtedly facilitate their resettlement and claim for compensation.
Until the issue of settlement has been resolved, it is essential that the services of UNRWA be fully maintained and funded, up to and including the period of resettlement to ensure their seamless transfer to the Governments concerned.
I have urged the Council of Europe to accept that the undoubtedly massive cost of resettlement, including compensation, promised under UN resolution 194, should be anticipated and budgeted for by the international community as soon as possible.
I have proposed the establishment by the United Nations of a new fund—the Palestine refugee and displaced persons final status fund. I proposed that it urges member states to prepare their budgets to donate to the fund, and that it approaches in particular those countries that are not already generously donating to UNRWA and the Palestinian authority, as this country and many Council of Europe member states willingly do.
From the experience of my visit, I have urged Israel to allow the completion of the Canada Camp-Talal Sultan relocation project, to which it agreed, with Egypt, nine years ago. I have urged those involved in the new Gaza hospital, which is now ready, to agree on its future financing to allow it to open its doors to patients, which it cannot do at present. I have urged Lebanon, now that it is returning to stability, to emulate other host countries in providing basic services to its Palestinian refugees, whose situation is the most deprived.
It must be clear to all that my report, albeit my third on the issue, is merely the work of a layman based on observations and conclusions from a nine-day visit. More political and academic studies should be commissioned into a just resolution of the Palestine refugee problem.
I congratulate the Minister on the Warwick university conference on this issue. That was organised under the UK presidency of the European Union, which he and I attended last month.
Let us not underestimate the undoubted progress that has been achieved since that historic handshake on the White House lawn in 1993. Who then would have predicted the establishment of a Palestinian authority, and the return of Arafat to Gaza? However, it must be clear to the whole world, including Israel, that, after half a century, only the most sadistic want the Palestine refugee issue to remain unresolved.
In debating my report last week, the Council of Europe became the first international organisation to discuss how the issue should be resolved, and I hope that, by approving my proposals, it will contribute to an end to the stalemate, and the beginning of the end of the longest and largest refugee problem to have scarred the 20th century.

The Minister of State, Foreign and Commonwealth Office (Mr. Derek Fatchett): I am delighted to reply to the speech by the hon. Member for Bournemouth, East (Mr. Atkinson). This is the third Adjournment debate to which I have replied today, and in some respects the sweetest, because it will be the last. Perhaps I have achieved a ministerial first by replying to three debates in one day. I shall look that up in the appropriate journal of record.
I thank the hon. Member for his remarks, including those about my involvement in the Warwick seminar, and his visit to the region. I thank him also on behalf of the staff of the embassies, to whom I have conveyed his good wishes and thanks, which they appreciate. I have no doubt that they will read his words in Hansard, which will be a source of satisfaction to them. They will be grateful that he has taken this opportunity to thank them for their work.
I congratulate the hon. Gentleman on his work as the rapporteur on this subject for the Parliamentary Assembly of the Council of Europe. He showed in his speech the extent to which he takes those responsibilities seriously, and discharges them assiduously and effectively. His contribution was serious, and he is clearly not seeking cheap solutions or using cheap slogans; he is seeking methods of helping people in difficult circumstances. I congratulate him on all the work that he has done in that respect.
The hon. Gentleman's words had even greater weight when he talked about his membership of the Conservative Friends of Israel. The great difficulty in many debates on the middle east is polarisation: someone who is a friend of the Palestinians becomes, by definition, an enemy of the Israelis, and vice versa.
I share with the hon. Gentleman profound personal friendships with Israelis and Palestinians. Nothing would give me greater pleasure than a world in which those people, to whom I can relate in friendship, could relate to each other in long-standing friendship. If such friendship were achieved, Israelis and Palestinians, working together, would make an effective contribution to their region, and could change for the better the shape of its politics and economy. The force of the hon. Gentleman's comments was very strong, and the intention and sympathies behind them were made even stronger by his support for the security and existence of the state of Israel.


The hon. Gentleman referred to the 3.4 million refugees. For those who go to the region for the first time, one of the most meaningful visits is to one of the refugee camps in south Lebanon, Gaza or the west bank, where one sees the conditions in which people there have to try to survive. That is a moving experience.
I was in south Lebanon in April 1996 with my hon. Friend the Member for Morley and Rothwell (Mr. Gunnell). We saw tens—perhaps hundreds—of thousands of people living in abject poverty, with no hope, no expectations and nothing to live for except a daily survival that offers so very little. The experience was even more moving in the context of the war being fought alongside the refugee camps in which a further layer of suffering was added to the people's already miserable lives without their having any control over it.
Those refugees remind us all that we have a substantial obligation to look for ways in which we can assist the process and the prospects of peace. I thought of that when I visited the largest refugee camp in Gaza two or three years ago. I have not had the opportunity to visit any of the camps since I became a Minister. I considered the number of young children whose lives will be no different from those of their parents. Two or three generations will have lived in refugee camps unless we take the opportunities provided in the political process.
I feel that, whatever side we are meeting—Israelis, Palestinians or those from other Arab countries—when we get down to the detail of who said or did what, we always avoid the responsibility of reaching the big statesmanlike decisions, which say that peace is the primary objective. Above all else, the middle east needs active diplomacy and statesmanship that look not to today or, even worse, to yesterday, but to tomorrow's prospects for the region and the people.
Real political leadership is not about trying to score points in immediate political debates, however tempting that is from time to time, and however much hon. Members succumb to that temptation. Real political leadership lies in recognising the long-term future of those whom one is in politics to represent. Those in the middle east have a responsibility to take such a longer-term perspective, and above all to recognise that those who are disfranchised and whose voice is not heard at the negotiating table are probably making the most powerful cry for help. The refugees to whom the hon. Member referred are their highest responsibility.
During our presidency of the European Union, we have said several times that we wish to give a push to the middle east peace process. We need to get progress back into the process.
I vividly remember the meeting of my right hon. Friend the Prime Minister with Arab ambassadors immediately after the Iraqi crisis in early February. They talked almost exclusively about the middle east peace process. My right hon. Friend said that the situation in Northern Ireland always offered, logically, three possible options: to stand still, to go back or to go forward. He made the point that, in Northern Ireland, to stand still is to go back. If that is true of Northern Ireland, it is perhaps even more true of the middle east. To take a picture of where we are today and to try to freeze the status quo, or to set it in concrete, is an approach that is simply not going to work.
Standing still means going backward, because it does not meet the requirements of the refugees to whom the hon. Gentleman referred. It does not meet the requirements of the people of Israel for security, and a long-standing faith that their state will survive with enough security for them to bring up their families and enjoy a life that all hon. Members would consider to be normal. The pressure on us to make progress is acute and desperate, and we should all recognise it.
We have tried to take our responsibility seriously, and to move the process forward. The House will know of the position that we have taken during our presidency, and the emphasis that we have placed on further redeployments. Land for peace is still a crucial principle of the Oslo accords, and the crucial means through which we shall secure lasting peace in the middle east.
As well as addressing those issues, we have addressed others that are crucial to restoring confidence, such as ensuring that neither party pre-empts the final status negotiations by taking decisions that will favour any one party. That is why we, on behalf of the European Union, have condemned the development of settlements on the west bank. We shall continue to take such positions.
We shall continue to wish to return hope to the Palestinians by recognising that economic measures are important to restoring and developing prosperity. There will be little dividend from a peace process that has so far seen the average living standard of the ordinary Palestinian decline by perhaps 40 or even 50 per cent. Peace and economic prosperity do not inevitably come together, but we all know that, without economic prosperity, the chances of peace are much more remote. The Prime Minister has rightly emphasised the need to develop economic interim measures to ensure that we make progress on the Gaza airport, the industrial estate, safe passage and the Gaza port, all of which would help to improve the living standards of Palestinians.
Next week, the Palestinian leader and the Israeli Prime Minister will come to London with the American Secretary of State, Madeleine Albright. Their talks will be crucial to the peace process: they offer an opportunity to make progress. I desperately hope that all parties to those talks will take that opportunity.
Let me return to my earlier comments. I hope that those approaching the talks will do so with a vision of the future that puts the region and their own people above immediate political considerations. If we can create that atmosphere and achieve some progress in the London talks, that in itself will create new hope and expectation in the middle east. We cannot simply allow the region to continue in frustration and without hope. That has been our approach, and I am delighted that it has been supported by all parties in the House. Everyone realises the need to make progress in the middle east peace process.
The hon. Member for Bournemouth, East rightly saw that that process, if it is successful, will provide us with the final status negotiations and, we hope, a final resolution to deep-seated problems. That depends on political will and political judgment, but the hon. Gentleman was right to say that the status and condition of the Palestinian refugees must be an important issue. He correctly set out the parameters—the difficulties and the hopes—within which that discussion will take place. We must be frank about both, and I praise the hon. Gentleman's frankness in raising the difficulties and constraints that exist.
If the political will is there, we can start to address those problems. If the political will is there, we all know that the Palestinian refugee issue is one of the final-status issues that, although it will be difficult to resolve, must be resolved. That is why, as the hon. Gentleman said, as part of our EU presidency, we organised a seminar at Warwick university. I think that it was successful, not because it sloganised or because people wished to score points off each other, but because it brought together people with different perspectives and experiences who wanted to make practical progress, while still recognising the hurdles and constraints.
We shall continue to support such initiatives, and to do all we can to move the peace process forward, so that we have an opportunity to put into practice some of the excellent ideas and practical proposals that the hon. Gentleman outlined.
When one sees the refugee camps in the middle east, one recognises the extent of the political problems, and the extent to which people have suffered for those

problems. There is one other sad, but obvious, fact. There can be no political resolution that provides security, peace and justice without taking account of the needs of the Palestinian refugees. Nor can there be lasting peace and security in a region that has the potential for riches and the potential to grow and make a significant contribution to the world while that region still has some of the world's most underprivileged people living alongside some of the world's most affluent people. We must tackle this issue with a sense of social and political justice, which would lead to progress in the peace process and security for everyone.
I congratulate the hon. Member for Bournemouth, East on raising the issue, and look forward to working with him further. I hope that we may some day find a resolution to a difficult and intractable problem.

It being before Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.

Oral Answers to Questions — INTERNATIONAL DEVELOPMENT

The Secretary of State was asked—

Heavily Indebted Poor Countries Initiative

Mr. John Heppell: If she will make a statement on progress with implementation of the heavily indebted poor countries initiative. [39059]

The Secretary of State for International Development (Clare Short): So far, six countries have qualified for debt relief worth about $5.7 billion under the heavily indebted poor countries initiative. Uganda received relief worth about $350 million earlier this month. Bolivia and Guyana are expected to follow later this year; and Burkina Faso, Cote d'Ivoire and most recently Mozambique qualified for relief after a further period of sound policy. The Government will continue to press for full and speedy implementation of the initiative and we are optimistic that all eligible countries will be on track for debt relief by 2000—the target that was set out by the Chancellor of the Exchequer in his Mauritius mandate.

Mr. Heppell: I congratulate my right hon. Friend on her energy and obvious hard work, and 1 congratulate her and the Chancellor of the Exchequer on their commitment to the heavily indebted poor countries initiative. What else can be done to bring other richer nations on board to implement the initiative more speedily?

Clare Short: We are making considerable progress. Shortly after the general election, at the Commonwealth finance leaders meeting in Mauritius, my right hon. Friend the Chancellor declared that the aim of the Mauritius mandate was that three quarters of eligible highly indebted countries should be on track by 2000. At the subsequent International Monetary Fund and World bank meeting in Hong Kong, we could not get agreement. We have just had the spring meetings in Washington, and there is widespread agreement that the target will be reached. We have achieved more momentum but we should not be complacent; there is growing international support and commitment to pushing the initiative forward.

Dr. Jenny Tonge: Does the Secretary of State think that the HIPC initiative offers sufficient relief to countries such as Rwanda, which is struggling to recover from genocide? Does she agree that, in view of Rwanda's unique position, the HIPC initiative should be moved much more swiftly and freely to give that country relief immediately?

Clare Short: The hon. Lady is right. The 37 countries that are farthest from the internationally agreed poverty eradication target are either in conflict or have recently emerged from it. Rwanda is one of those countries and, of course, it is one of the world's poorest countries and is struggling to recover from terrible genocide, which is partly the fault of the international community's failure to intervene to prevent it.
Rwanda would not qualify under the strict terms of the HIPC initiative, because it has recently come out of conflict and therefore does not have the necessary track record of responsible economic management. The Chancellor and I are, as we have said publicly, very keen to talk with others about making the system more flexible so that countries such as Rwanda, whose Governments are committed to sensible economic policies, can benefit.

Mr. Andrew Reed: I welcome the work that has been done in the HIPC initiative so far, but will my right hon. Friend explain how we can speed up the process? I am thinking in particular of Mozambique—33 per cent. of that country's income is repayable as debt, whereas only 3.3 per cent. is spent on education, and only 8 per cent. is spent on health. It is obvious that, if we relieve Mozambique of that debt, it can prosper. I understand that there have been difficulties in the Paris club, but what further steps can she take to speed up the process for Mozambique?

Clare Short: My hon. Friend is right. Mozambique is among the poorest countries of the world; it has only recently emerged from a terrible civil war, which was a consequence of the apartheid regime in South Africa before it, happily, fell. Mozambique, too, has a responsible Government, who are trying to do their best in the most difficult circumstances conceivable.
We have had some success on Mozambique recently. My hon. Friend rightly referred to the fact that the Paris club could not agree that more than 80 per cent. of export credit debts should be written off, leaving Mozambique with a debt relief funding gap of $100 million. The British Government put forward $10 million and successfully challenged others to meet us on that—other donor countries, the International Monetary Fund and the World bank found the remaining funds. Mozambique now has a programme and will receive debt relief by, I think, 2001. In the meantime, we can help it with its debt payments, as we have this year.

Sir Alastair Goodlad: The Opposition agree with the Secretary of State on the importance of the heavily indebted poor countries initiative. Does she accept that good government is an essential factor in determining which states can succeed in tackling poverty? Will her Department continue to attach strict good government conditions to the writing off of debt? Will she say with which countries that is currently a problem?

Clare Short: The right hon. Gentleman is right. Although the east Asian countries had the fastest economic growth, and therefore probably the fastest poverty eradication in human history, a major lesson of the crisis there is that, without proper, transparent government and regulations: not all such economic growth is sustainable. Good governance is a crucial component of the economic policies that benefit the poor.
On the HIPC initiative—which Mr. Camdessus described as an enormously precious baby of the international community with a terrible name—the good governance qualification is part of the good economic track record qualification. Governments must have a good track record to qualify for their first stage of debt relief, and their record must continue to be good. The test is based on good economic performance, which is not the


whole of good governance, although it is a necessary component. I assure the right hon. Gentleman that the achievement of good governance that can sustain poverty eradication is an essential component of all my Department's work.

Russian Resettlement Project

Mr. Lindsay Hoyle: If she will make a statement on her Department's involvement in the Russian resettlement project for retraining unemployed former Soviet army officers in Russia. [39060]

The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): The Department for International Development has no involvement in the Russian resettlement project. The Government have spent £3.6 million since 1991 on the retraining of Russian military officers, but that is primarily through the Ministry of Defence. We also contribute to the cost of retraining through the European Community's TACIS programme. The Department provides support to help the Russian transition through the know-how fund.

Mr. Hoyle: That answer was comprehensive, but we know that £496,000 from the know-how fund has been channelled into the retraining of Russian officers. Would not that money be better spent on retraining warlords and on ending poverty in third-world countries?

Mr. Foulkes: The two projects that used money from the know-how fund to resettle and retrain former officers in Russia ended in October 1994 and March 1997 respectively. Effective demobilisation and restructuring of armed forces is vital to development. In Sierra Leone, for example, the coup—and the consequent poverty and tragedy—would have been averted if such a programme had been implemented.

Mr. John Wilkinson: May I point out that British Government assistance for the resettlement and retraining of former Soviet officers is at least as important in the Baltic states of Estonia and Latvia as it is in the Russian Federation? Will the Minister assure us that if his Department, on behalf of the Government, examine the matter in future, it will give sympathetic consideration to the resettlement and training of former Soviet officers in the Baltic states?

Mr. Foulkes: It may be more appropriate for that to be done under the PHARE programme, but we would certainly consider any sensible proposal that fell within the know-how fund's terms of reference.

United Nations Development Programme

Mr. Andrew Robathan: What assessment she has made of the total cost to the United Kingdom of the United Nations development programme. [39061]

The Secretary of State for International Development (Clare Short): The UK core contribution to UNDP in 1998 is £30 million. Additional funding may be provided for a range of specific UNDP project activities. As the hon. Gentleman will know, UNDP has

a key role to play in promoting sustainable development and poverty eradication and in pulling the whole UN effort together in individual countries. The Government strongly back Kofi Annan' s programme to increase the effectiveness of the UN system and are pleased that UNDP is working to implement those reforms. That is why we have increased our contribution to UNDP this year.

Mr. Robathan: I am grateful to the right hon. Lady for that response. She knows that many of us are concerned about what seems to be the bureaucratic and expensive structure of the UN and UNDP. She knows of the high salaries of international civil servants, which do not always seem to promote efficient and effective UN action. Will she ensure that the UK is at the forefront of moves—which she has mentioned—to reform the UN structure so that we get a much more effective organisation? Does she recall telling the International Development Committee that the UN costs less than the New York fire brigade? Will she now acknowledge that the UN spends $3 billion a year, which is about three times the cost of that fire brigade? We hope that the UN will be many, many times more effective?

Clare Short: No. I shall check the figure; I have certainly read it repeatedly. The political right has a long-standing record—I am not accusing the hon. Gentleman of being part of it—of trying to knock, damage and undermine the UN, which is wrong and a regrettable tradition in United States politics, as the hon. Gentleman will know. The UN's expenses are often wildly exaggerated as part of that debate. That is unfortunate because, given the state of globalisation, the whole world community needs a much stronger UN; but I strongly agree that the UN system needs reform and to be more effective.
As we have made clear, we are not interested in savings from the UN; we think that any savings should go back into promoting and strengthening its capacity and development. Kofi Annan is leading a powerful reform programme that is having serious effect. We are increasing our contributions to those agencies and parts of the system that are going with the reform programme; UNDP is a leading agency in that.

Dr. Norman A. Godman: Under both Tory and Labour Administrations, the UK has always paid its UN dues promptly. Does my right hon. Friend agree that matters would be much improved, particularly in terms of reform and the funding of development programmes, if countries that are in arrears with their subscriptions were compelled to pay up? The chief transgressor is the United States of America. That is surely a disgraceful state of affairs.

Clare Short: I agree with my hon. Friend; all countries that are represented in the UN should pay their dues, just as we should all pay our dues to any organisation in which we seek to be represented. As he will know, President Clinton has undertaken to pay off the United States' arrears. It is deeply regrettable that the consequential legislation, which has just passed through Congress, had some ridiculous attachments that prevent the United States from supporting reproductive health care programmes throughout the world. The President has therefore found


it necessary to veto the legislation. That is deeply regrettable. I agree with President Clinton that it is entirely desirable that the United States should pay its dues. It is regrettable that some elements in Congress and the Senate do not agree with that.

Mr. John D. Taylor: As the United Nations development programme assists African, Caribbean and Pacific countries, which already receive support from the European development programme, is there not a danger of duplication by those two separate agencies? Has not the time arrived when the United Kingdom should consider concentrating solely upon the United Nations development programme?

Clare Short: The right hon. Gentleman is absolutely right to say that the fractured nature of development assistance is a serious problem. There are so many bilateral programmes and international agencies that many poor countries have thousands of development projects and must negotiate with and account to hundreds of countries—thereby fracturing their development effort, rather than uniting it in promoting sustainable development.
The answer is not so much to try to abolish agencies or to work with only one agency as to pull together the international effort. We are therefore strongly backing the international poverty eradication strategy, which sets targets for each country and asks each country to formulate its own programme to meet its targets. Under the strategy, donors can work in collaboration with a country's Government, thereby pulling together and enabling measurement of real progress in each country.

Bangladesh

Mr. Andrew F. Bennett: If she will make a statement on help given to Bangladesh to foster democracy. [39062]

The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): We are supporting improvements in the effectiveness of governance in Bangladesh and supported independent monitoring of national and local elections. As my hon. Friend will know after his successful visit last year to Bangladesh, we are also working to strengthen parliamentary institutions. We are currently looking for ways of providing further help, especially in supporting the democratic rights of the poor.

Mr. Bennett: I thank my hon. Friend for that reply. Given the very difficult physical and climatic problems facing Bangladesh, does my hon. Friend accept that non-governmental agencies in Bangladesh are doing an excellent job? However, must not that work be matched by local, democratically elected politicians making the parliamentary system work, so that they can encourage both investment and aid to help Bangladesh overcome its horrendous problems?

Mr. Foulkes: I agree with everything my hon. Friend said. Save the Children Fund is one of the non-governmental organisations that are working very effectively in Bangladesh. It is working on civil rights advocacy and primary health, it is working with

vulnerable children and it is helping poorer communities to cope with floods. Hon. Members might like to know that the director of Save the Children Fund has written to the Secretary of State to dissociate his organisation from remarks made by Conservative Members—including one Opposition Front Bencher—purporting to represent the fund's views. Save the Children Fund welcomes the White Paper and its aims, and I hope that Conservative Members will not only retract, but apologise for, their remarks.

Mr. Andrew Rowe: Does the Minister agree that, among its many rather impressive achievements, Bangladesh's creation of its own, native-born non-governmental organisations has been very impressive? Does he agree also that development of NGOs within a country is one of the best ways of strengthening democracy at every level?

Mr. Foulkes: I am happy to agree with all the hon. Gentleman's comments. The Grameen bank, founded by Professor Younis, is one of the most notable and successful NGOs, lending small amounts of money to people, particularly women, to start businesses. Its example has been followed around the world by many countries.

Democracy-building Projects

Mr. Oliver Letwin: If she will make a statement on the democracy—building projects her Department has sponsored. [39064]

The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): It is clear that good and transparent governance is essential to achieving economic growth, which benefits poor people, and to achieving international poverty eradication targets. Since last May, we have committed more than £70 million in efforts to promote good governance.

Mr. Letwin: I am grateful to the Minister for that reply. Will he tell the House his views and those of the Secretary of State on democracy and free speech in China?

Mr. Foulkes: We are of course in favour of democracy and free speech—in the Conservative party, in the Labour party and in all countries with which we have partnerships. When we have the opportunity, we clearly state to our interlocutors in China the importance of respect for human rights and free speech.

Fiona Mactaggart: Is the Department doing anything about building democracy in Nigeria, where there is widespread abuse of human rights and lack of democracy, and General Abacha is running riot?

Mr. Foulkes: We have shown our solidarity with the oppressed people of Nigeria by working through local civilian organisations, non-governmental organisations and community-based groups—and not through the national Government. An election in which there is only one candidate is neither free nor fair: it is a farce.

EU Presidency

Ms Gisela Stuart: What the priorities of her Department are for European co-operation on international development matters during the United Kingdom presidency of the European Union; and if she will make a statement. [39065]

The Secretary of State for International Development (Clare Short): During the United Kingdom presidency, we are seeking to improve the poverty focus and the effectiveness of the European Community's aid programmes. Our top priorities are to agree the European Union negotiating mandate on the future of the Lome convention and to secure commitment to the international poverty eradication strategy and international development targets as a framework for all the European Community's development programmes.

Ms Stuart: What is the timetable for renegotiating the Lome treaty? Does my right hon. Friend expect the renegotiated mandate to be in place by the end of the UK presidency?

Clare Short: Our target is to get the mandate agreed by the end of our presidency. We hope that it will be agreed at the General Affairs Council towards the end of June. We will hold negotiations on that mandate with representatives of the African, Caribbean and Pacific countries. The renewal date is 2000. Our thinking is that we will be able to reorganise the aid part of the agreement within the international poverty eradication strategy by that date. We will probably need to roll over the trade arrangements for five years while negotiating improved arrangements to be put in place thereafter. That is our hope, and it is highly likely that we shall achieve it.

Mr. Nigel Evans: If Britain can lift debt repayments for countries such as Jamaica, the Turks and Caicos islands and some other Caribbean islands, as we have done for 12 months, how much better could the European Union do if it acted in concert? Will the Secretary of State consider how the whole of the EU can lead the rest of the world in lifting debt repayments, so that, towards the new millennium, we can give the poorest countries with the biggest debt a fresh start?

Clare Short: The hon. Gentleman is right. Since 1978, Britain has been writing off aid debt, and last year we agreed with some of the poorer, if not the poorest, Commonwealth countries, including Jamaica, that, if they adopted good governance and poverty eradication strategies, we would write off more debt.
The European Commission as an institution does not have much aid debt because it is not an old institution, but many of the member countries do, so we strongly agree with the hon. Gentleman that the Commission should contribute to the heavily indebted poor countries initiative, which it has done, and that we should try to mobilise all the efforts of the European Community and the European Union countries, which constitute 60 per cent. of the world's donors. If we had an effective alliance, the European countries could lead the world in a great step forward in poverty eradication.

Ms Tess Kingham: Morocco receives substantial development funding from European Union

member states, including the United Kingdom, despite the fact that it has illegally occupied Western Sahara since 1975 and that there were widespread human rights abuses against the Saharawi people in the run-up to the referendum this year. Will my right hon. Friend undertake to bring up with our partner states the situation in Morocco before any more money is released, and to ensure that adequate funding goes to Saharawi refugees, who are the injured party in the dispute?

Clare Short: I promise my hon. Friend that I will look into that matter in detail. My understanding, from memory, is that current disbursements in the Mediterranean programme are all halted because of inefficiencies in the methods of disbursing and accounting for the funding. I read this week that there has been some help for the refugees, but I cannot speak on the matter in any detail or with any authority, so I undertake to write to my hon. Friend.

Mr. David Faber: During their presidency of the European Union, the Government have rightly played a central role in the contact group on Kosovo. At the time of the Foreign Secretary's statement, the Secretary of State said that she had no plans to increase aid to Kosovo, but she may know that the Westminster Foundation for Democracy hopes to become involved in democracy-building measures there. Given that violence, and thus suffering, are increasing at a disturbing rate in Kosovo, does she have plans, with her EU counterparts, to direct further aid to it?

Clare Short: The hon. Gentleman is right; the position in Kosovo is dangerous again, and there is a haunting sense that conflict might break out in the Balkans, as it did when we thought we were making progress in Bosnia. It has never been suggested to me that development assistance from my Department could help in Kosovo, but if contributions from EU programmes would assist and if the hon. Gentleman has any suggestions, I should be more than happy to look into them and to do anything we can to help.

International Monetary Fund-World Bank Meeting

Mr. Richard Allan: What issues were discussed at the recent IMF-World bank meeting; and if she will make a statement. [39067]

The Secretary of State for International Development (Clare Short): The Chancellor of the Exchequer and I attended the spring meetings of the IMF and the World bank in Washington recently. Our priorities were, first, to improve collaboration between the bank and the fund so that lending programmes such as those in east Asia and in Africa take account of macro-economic adjustment, development needs and the needs of the poor; secondly, to agree that the bank must re-balance the cost of its services so that adequate resources are available for the poorest countries; and, thirdly, to speed up implementation of the highly indebted poor countries initiative. I am pleased that we made progress on all those issues. The Chancellor and I also had discussions on a range of issues with the managing director of the IMF and the president of the World bank.

Mr. Allan: While I appreciate that the Department is so keen on inclusive government that it sends briefings


with suggested supplementary questions to Opposition Members, I hope that the Secretary of State will forgive me for not using one of them. Does she agree that the Jubilee 2000 coalition, which is supported by many thousands of our citizens, should be responded to by the Government, and that the World bank and the IMF are crucial to any accelerated programme of debt relief for the poorest countries? Are moves being made in that direction on behalf of the IMF and the World bank?

Clare Short: I have often said in the Chamber that the issues with which we deal at Question Time are far too important for party politics. Most of the time, there has been serious engagement from hon. Members on both sides of the House on how we can make progress in development, which I welcome. I am pleased that the hon. Gentleman received the briefing—I did not write it—and hope that he found it useful.
My right hon. Friend the Chancellor and I strongly agree that we must speed up implementation of the HIPC initiative. When my right hon. Friend put forward the Mauritius mandate nearly a year ago, there was resistance among other countries to the target of getting three quarters of countries on course by 2000. Now everyone agrees that it is likely to be achieved, but we must not be complacent. Countries such as Rwanda do not qualify, and we must do more. I agree with the hon. Gentleman that the Churches and Jubilee 2000 have done a glorious job in mobilising support in this country and internationally for debt relief for the poorest countries.

Ann Clwyd: My right hon. Friend will confirm that she did not give me this supplementary question. Will she also confirm that the bail-out of the corrupt regime in Indonesia, which will cost this country an estimated $700 million, was discussed at the recent meeting of the IMF and the World bank? In the light of her remarks about good governance and respect for human rights, how can we support the bail-out of a regime that is attacking pro-democracy activists and torturing students, and which is unstable and will collapse in the near future?

Clare Short: My hon. Friend is right; the Indonesian Government are responsible for corrupt and unattractive practices and for poor governance, which have helped to feed the depths of the crisis in Indonesia. No one wants to bail out people who are responsible for such practices, but we are deeply worried about the suffering of the people of Indonesia. The task is to intervene in ways which bring relief to the poor and prevent the crisis from spreading, and require greater transparency that bears down on corruption so as not to prop up the current practices of the Indonesian Government. We are right to try to achieve those things; otherwise, the suffering of the people of Indonesia will be even greater.

Mrs. Margaret Ewing: How many coins have been received by the right hon. Lady's Department and the Treasury from people who support Jubilee 2000, and how will they be spent?

Clare Short: Speaking again from memory, around £2,000 of shillings, I think, was sent to the Treasury, which is why I do not know exactly. I am sure that my right hon. Friend the Chancellor does. They have all been

credited to Tanzania. The coins are a token of the concern of the many people who write letters in vast quantities and visit my advice bureau, and whom I meet in schools in my constituency. That shows the depth of generosity and commitment of the people of Britain, including poor people, to bring relief to people in need across the world.

South Africa

Mr. Peter L. Pike: What aid is planned for 1998–99 for South Africa from the know-how fund. [39069]

The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): The know-how fund provides technical assistance to countries in transition. We provide similar support to South Africa to reduce poverty by helping to improve delivery of education, health, enterprise development, water and environmental services. We plan to spend £25 million on these activities in the current financial year.

Mr. Pike: It is exactly four years since polling in the first free election, which ended the apartheid era. The legacy of apartheid will take many years to remove. Will not the know-how fund play a crucial part in helping South Africa and its economy to deliver what we want for that country as we move forward to the new millennium?

Mr. Foulkes: Since the end of apartheid in South Africa, Britain has pledged £120 million of bilateral aid. In the current financial year, £22.5 million is to be spent, in addition to £100 million from the European Union, £15 million of which comes from the British taxpayer. That is a great contribution to ensuring that the transition from the apartheid regime to a democratic South Africa prosperous for all its people is carried out as smoothly and swiftly as possible.

Oral Answers to Questions — PRIME MINISTER

The Prime Minister was asked—

Engagements

Mrs. Anne McGuire: If he will list his official engagements for Wednesday 29 April.

The Prime Minister (Mr. Tony Blair): This morning, I had meetings with ministerial colleagues and others. I also did a live video broadcast on the internet. In addition to my duties in the House, I shall be having further meetings later today.

Mrs. McGuire: I thank the Prime Minister for his answer. A year ago, people in Stirling made their contribution to the election of a Labour Government by throwing out—I love to say it—the then Secretary of State for Scotland. Does the Prime Minister recognise that our emphasis over the past year on the economy, health and education has kept faith with those voters, and that we will build on that success in the second year? Will he


comment on the fact that, in even the most critical analysis of our first year, we have not heard the cry, "Bring back the Tories!"?

The Prime Minister: Certainly not. Since last May, we have had the extra £1.3 billion to improve school buildings and the £1 billion on current spending. We have had the Bill to cut class sizes—the Education (Schools) Bill—and we have replaced nursery vouchers. The NHS has had £2 billion more. We have had the new deal for the unemployed. VAT on heating has been cut, and handguns have been banned. Child benefit is up. We have had referendums in Scotland and Wales, and there have been cash payments to pensioners. That is a record of which this Government are proud.

Mr. William Hague: A year ago, the Prime Minister promised to cut national health service waiting lists. After the year on which he has just been so busy congratulating himself, they stand at more than 1.25 million, up by 100,000. Will he confirm that?

The Prime Minister: Waiting lists had been going up for several years before we came to power. As a result of what this Government have done, we will fulfil our election pledge, and the appalling record on waiting lists of the right hon. Gentleman's Government will be reversed by ours. We made the pledge for this Parliament and we will deliver it this Parliament.

Mr. Hague: Is it not true that the figures mean that waiting lists have gone up by more than 2,000 for every week that the right hon. Gentleman has been in office? Is it not true that he promised to reduce waiting lists as an early pledge at the time that he made the pledge? Is it not amazing that, in the assessment of the past year published yesterday, the Secretary of State for Health says that the waiting list promise is a promise that is being delivered? Is it sufficient for the Secretary of State for Health to say now that, even by next year, waiting lists can only be back to square one and the manifesto commitment still not met?

The Prime Minister: No. What is amazing is the Conservatives having the impudence to attack anyone on their record on the national health service. We have put in £2 billion more than the Conservative spending plans, and we will get the waiting lists down. Yes, of course it takes time to reverse the record of the previous Government, but we will do it.

Mr. Hague: Is it not extraordinary that the Secretary of State for Health says that he is partly responsible for that failure, but that the Prime Minister never takes any responsibility himself? His colleagues made specific promises to keep hospitals open, and he is closing them. They promised to save the NHS and he is increasing spending by less than the Conservative average. They promised to cut waiting lists and waiting lists are now at a record high. Is that what he meant a year ago when he said that things could only get better? Is it not the case that, on the NHS, he promised so much and, on the NHS, he has let people down?

The Prime Minister: No. First, the amount of money we are putting into the health service—as I said, £2 billion over and above Conservative spending plans—means that

we are raising health service spending by significantly more than was done in all the years that the right hon. Gentleman was in the Conservative Cabinet. Secondly, we will get the national health service waiting lists down—we will get them down. That is our pledge and, when we meet that pledge, I hope that the right hon. Gentleman will stand at that Dispatch Box and congratulate us.

Mr. Ian Pearson: Looking ahead to this weekend's historic summit, which will decide the founder members of economic and monetary union, does my right hon. Friend agree that a successful euro is important to Britain's economy? Is it not typical of Conservative Members that they still do not know whether they are in favour of anybody joining EMU, and are in total disarray? Will he confirm that any future decision to participate will be taken in Britain's national economic interest by the people of Britain through a referendum, and that the Government trust the people of Britain?

The Prime Minister: The policy of the Conservative party was a mess before the election and has been a catastrophe since the election. It is extremely important for Britain that the euro is a success, whether Britain is in or out of it. I believe that the fact that we now have a Government who have a constructive attitude toward Europe and who are working well with other countries in Europe is a significant plus, not only for Europe, but, more importantly, for Britain.

Mr. Paddy Ashdown: If a successful euro is important for Britain, why on earth are the Government still sitting on the fence about it? As the Prime Minister, with understandable justification, celebrates the first year of his party in office, will he spare a little time to reflect for a moment on the fact that Britain's industrial sector is now officially in recession; that the reason for that is an uncompetitive pound; that his Government's inability to face up to taking a clear decision on monetary union means that he can do nothing in that respect; and that the price is now being paid in lost exports, and will soon be paid in broken businesses and lost jobs?

The Prime Minister: I do not agree with that. I cannot think of a worse reason for joining the euro than simply to bring down the pound in the short term—that would be a great mistake. In respect of exports, the right hon. Gentleman will know that the Confederation of British Industry has already indicated that, over the coming year, its forecasts for the rise in exports are greater than those of the Government. It is also the case that, at the moment, manufacturing employment is still rising. We are aware of the difficulties people are experiencing with the strong pound, but there could be nothing worse than to intervene artificially to try to bring it down and return to the days of boom and bust, which did so much damage under the Conservatives.

Mr. Ashdown: Does the Prime Minister not realise that this is one of those issues in which the short-term interest and the long-term advantage coincide? He will be forced down the track faster than he now believes is likely because his Government, like the last, are being led by events in Europe, rather than leading them. What he


should be doing is adopting a declaratory policy, setting a target date for entry into single currency, following policies consistent with that aim, and holding a referendum on the principle before the next election. If he did that, the pound would go down, interest rates would go down, investment would go up and the Prime Minister would not be placed in the position, in which he is going to find himself this weekend, of presiding over a European meeting in which Britain ought to be playing on the field, but is relegated to standing on the touchline.

The Prime Minister: I do not agree with that at all. The right hon. Gentleman and his party believe in joining the euro no matter what the economic circumstances are. We believe that it is important that we join if the economic benefits are clear and unambiguous. That is the position that we have set out, and it is the right position. If we were artificially to try to intervene to take down the pound in the way that the right hon. Gentleman is suggesting, or, even worse, if we were to say that we would join the euro tomorrow and slash interest rates, irrespective of the domestic position of our economy, it would be a disaster for Britain, and for British industry.
The only way in which we shall deliver long-term economic strength is to cure the budget deficit, which we have done; to squeeze out inflation, which we have done; and to put economic policy on a stable footing for the long term, instead of repeating the boom and bust which, as people remember, gave us interest rates at 15 per cent. for a year or more and landed us with a doubled national debt. That was the Conservative record; we do not intend to emulate it.

Mr. Phil Hope: Hon. Members will be aware of the appalling crisis and famine in Sudan. Is my right hon. Friend also aware that an opinion poll has recently shown that many young people in this country are deeply concerned about such issues and want to learn more about the problems of global poverty, yet feel powerless to do anything about them? Will he tell the House how we are responding to the crisis in Sudan? Will he give backing to efforts by schools and youth services to raise young people's awareness of these issues, and to mobilise those young people, as active citizens, to tackle issues of global poverty?

The Prime Minister: Yes, I am aware that this is a very serious issue indeed for many young people, and for many of us, which is one reason why the Chancellor gave extra help for people who want to make donations to the developing world.
The United Kingdom is one of the largest donors of aid to Sudan. We have pledged an extra £4 million; I believe that, since 1991, we have given more than £130 million. It is important, of course, that there is a ceasefire so that that aid gets through to the places where it is needed, and I am sure that my hon. Friend will have heard the comments of the Secretary of State for International Development a moment ago, in which she emphasised

how important it is that we bring about political stability in Sudan, so that those people who are suffering at the moment can get the help that we are pledged to give them.

Mr. Alan Duncan: Will the Prime Minister confirm that he never knew the identity of anyone who contributed to his blind trust?

The Prime Minister: As I have always said, that is the case.

Mr. Tony Colman: Is the Prime Minister aware that if, on 7 May, the Labour party wins control of Wandsworth council, it intends to spend an extra £1.5 million on education, via the schools budget£a move that the director of finance has said is reasonable and something that he has no problem with? Does my right hon. Friend share my opinion that parents nationwide who share the Government's commitment to spending on education should vote Labour on 7 May?

The Prime Minister: I am delighted to share that suggestion, but the point that my hon. Friend makes is right also in the sense that, in contrast to Conservative councils, Labour councils are ensuring that the money that we are giving on education gets through to the schools. We have had a glimpse of what Conservative-controlled councils will do in Essex, where, although an extra £27 million was given to the council, it decided to cut £3 million from the education budget. That is Conservative policy for you.

Mr. John Butterfill: The right hon. Gentleman has said clearly that he thinks that there should be a process of evaluation of the euro after it goes ahead, before Britain takes a decision as to whether it should participate. What minimum period does he believe would be necessary for that evaluation?

The Prime Minister: We have made it clear that we do not foresee Britain joining monetary union in this Parliament. I know that the hon. Gentleman's party has put some arbitrary date on joining, but I do not think that that is sensible. We should make a judgment according to our national economic interest and on the basis that I outlined a moment ago. Ruling out joining for 10 or 30 years, or whatever the hon. Gentleman's party's position is these days—I am not really sure—is just not in the country's interests. So I believe it sensible to keep with the policy that we have put forward.

Mr. Dennis Skinner: Is the Prime Minister aware that, when I was surfing the internet today, I spotted the fact that the Institute of Directors—the real bosses—has come down in favour of a weak pound? Its members have joined the Tories and the Liberals in wanting a weak pound. I suggest that my right hon. Friend tell them, when he meets them in the big tent now and again, that they are the same people who are against the minimum wage, the social chapter, shorter hours for workers and longer holidays. Mark my words: if we ever had a weak pound, they would be against that as well. Remember the consequences: that lot devalued in 1992 and they lost the election. The history of Governments since the war shows that devaluations and weak pounds do not get you into Downing street.

The Prime Minister: That is one of the most imaginative bids for the presidency of the European


central bank that I have heard. My hon. Friend is absolutely right. By contrast, the remarks of the director general of the CBI highlighting the need to increase productivity are perhaps a better way into the economic arguments.
As for the internet, surfing it today I came across the entry of the right hon. Member for Richmond, Yorks (Mr. Hague), which comes under the logo "Meet Your Heroes Live". It also includes Madonna, the Spice Girls and the Wombles—who will no doubt be delighted that Wimbledon now has a Labour Member of Parliament.

Mr. William Hague: I am not surprised that the Prime Minister asks for up to two weeks' notice of questions on the internet, as we have never known him answer them live. Now that we have had a history lesson from the hon. Member for Bolsover (Mr. Skinner), may I ask the Prime Minister whether he thinks that Rupert Murdoch was right or wrong when he de-recognised the print unions in the 1980s and moved to Wapping?

The Prime Minister: I do not have the faintest idea what the right hon. Gentleman is getting at. What I can tell him is that, whether Mr. Rupert Murdoch agrees or not, there will be laws giving people the right to recognition, and they will be introduced by a Labour Government. It would be helpful to know whether the right hon. Gentleman intends to oppose or support them.

Mr. Hague: The right hon. Gentleman must know that Rupert Murdoch would never have been able to break the stranglehold of the print unions if a compulsory union recognition law had been in force at the time. Now the Prime Minister proposes to introduce such a law, hugely extending trade union power. Is not that an attempt to turn the clock back to the trade union laws that we last had in the 1970s? Does he really believe that what this country needs as it enters the 21st century is more trade union power?

The Prime Minister: If that was a pitch for Rupert Murdoch' s support, the right hon. Gentleman could do a bit better. We are not turning the clock back; what is surely important is that people should get basic minimum rights in the workplace. The right hon. Gentleman used to tell us that he was opposed in principle to the minimum wage. What is his position today?

Mr. Hague: This is Prime Minister's Question Time. The Prime Minister is trying to do a deal with the unions because they expect that in return for financing the Labour party. This is one pledge that he knows he has to deliver early. Instead of doing backroom deals with the Labour party's paymasters, should he not be telling them that the days of increasing trade union power are well and truly over and must never return?

The Prime Minister: If there is any brain left in the Opposition, it is time that they manifested it. The right hon. Gentleman seems to have the idea that, by giving people the right to union representation if they want it, we are committing some terrible act against employers. Every civilised country anywhere in the world grants such rights. The United States does so. As far as I am aware, every modern economy says that, if people wish to be part of a trade union, they should be able to do so.
There is a basic philosophical difference between Conservative and Labour. Whether in the context of the minimum wage or trade union recognition, basic minimum conditions of fairness at the workplace are perfectly consistent with a prosperous and efficient economy. That is our philosophy. It is not the right hon. Gentleman's, but I believe that ours is more in tune with the British people.

Mr. John Heppell: Although I am sure that many people would respect Mary Bell for trying to create a new life with a new identity, will my right hon. Friend join me and the majority of people in Britain in expressing disgust and disappointment at the fact that she should gain financially from being the perpetrator of a heinous crime?

The Prime Minister: As I said this morning, most people would find it repugnant that anyone should benefit from crimes as heinous and appalling as those. It is right that the Home Secretary should look at how we can strengthen the law in that regard, as he has said he will do. The existing law, besides not being retrospective, would not deal with that case. It is important that we make sure that the law is tightened. The Home Secretary will consider that. Most people would consider it wrong that any money is received or paid over in respect of books written about such crimes.

Mrs. Ann Winterton: What personal initiatives has the right hon. Gentleman taken, as Prime Minister and with Britain holding the presidency of the European Union, to introduce proposals to stem the supply of drugs from South America through the Caribbean and from Asia through Turkey?

The Prime Minister: As the hon. Lady may know, we have concluded with the countries coming into the European Union pre-accession pacts on organised crime, including drugs. We have also hosted several meetings at EU level to improve co-ordination in the fight against international crime and drug abuse. That will be one of the topics raised at the EU meeting in Cardiff and the G8 meeting in Birmingham.

Mr. Stephen Timms: The Government this week launched the new policy on tackling drug abuse, which has been widely welcomed, including by the hon. Member for Congleton (Mrs. Winterton), especially the announcement that the assets of drug dealers will be seized to fund anti-drugs work. How does that initiative fit into the Government's wider assault on social exclusion? Are not additional data required on the impact of drugs in our communities—data that have not been available in the past? Is it not a tragedy that up to 200,000 people in Britain have had their lives blighted by drug addiction?

The Prime Minister: The problem is serious, and we are pleased that there has been cross-party consensus on it. In the statement a couple of days ago, we acknowledged the work that had been done on the matter by Tony Newton, now Lord Newton. It is important that we tackle every aspect of the problem, not just through measures to seize the proceeds of crime, but through better education and better treatment, and by dealing with


the problems of poor housing, unemployment and social exclusion, where drug abuse festers. There is no doubt that, unless we tackle both the supply and the demand, we have no chance of success.

Mr. Tom Brake: A school in my constituency has just sent a letter to parents asking them to contribute £10 a month because the school cannot make ends meet. One year on, is education, education, education still the Prime Minister's priority?

The Prime Minister: Yes. That is why we are spending more money on education than the Liberal Democrats asked for before the election. [HON. MEMBERS: "No."] I am afraid that that is absolutely right. We are spending not merely more money on current expenditure, but more on the school repairs programme. I have always said that it will take time, but we shall meet our pledges. We are providing the extra resources, but they must be combined with reforming our schools to make them work more effectively.

Mr. Lawrie Quinn (Scarborough and Whitby): Is my right hon. Friend aware that my constituents in Scarborough and Whitby, along with many other people in North Yorkshire, will benefit from the £1.4 million extra spending on rural bus services? Does that not show clearly that the Government will deliver a national transport policy, unlike the previous Government, who presided over a decline in rural transportation to the extent that three quarters of parishes in England have no daily bus services?

The Prime Minister: Yes. The money announced in the Budget—£41 million for England and £50 million overall in the next three years£will go some way towards repairing the damage done by the previous Government. Literally only a quarter of parishes in England have proper rural transport services at present. Our Budget announcement is only a start: we want to go on and do more.

Mr. Patrick Nicholls: When the Prime Minister responded a few moments ago to my hon. Friend the Member for Rutland and Melton (Mr. Duncan), was he aware that, at the Neill committee meeting this morning, a Mr. Drucker—who was described as a major fund raiser for the Labour party—said that the beneficiaries of blind trusts know the identity of their donors? Accepting that the Prime Minister was speaking the truth about himself, is he entirely satisfied that Mr. Drucker was wrong about those members of the Cabinet who also enjoy the benefit of blind trusts?

The Prime Minister: As the hon. Gentleman no doubt knows, Mr. Drucker left the services of the Labour party. Since then, he has launched a series of attacks on the Labour party to which I do not attach any credibility.

Dan Norris: Sidney Cooke, a highly dangerous paedophile, is currently residing in an Avon and Somerset police station. He has apparently expressed the desire to live in the west country, specifically in Bristol. What reassurances can the Prime Minister offer—while recognising that this is a very difficult problem and that the Government and the police

are doing all in their powers to deal with it—to anxious parents, a worried public and hard-pressed professionals that Sidney Cooke is being dealt with in the best possible manner, and that a series of equally dangerous paedophiles who are likely to be released in the next few months will also be dealt with thoroughly and properly?

The Prime Minister: As my hon. Friend may know, we are toughening up the measures that apply to sex offenders in the latest Crime and Disorder Bill. Those measures will greatly extend the periods of supervision that apply to sex offenders. We are also working, as a priority, on a new sentencing power for courts that will give the public proper protection from dangerously disordered offenders, including the most serious sex offenders. Such people could remain in detention for as long as regular assessments show that they remain dangerous.
I stress also—as I am sure that my hon. Friend would—that we must deal with such matters through the law and not through mob or vigilante violence. I fully understand people's enormous concerns, and we are addressing them in the correct way: through the law.

Mr. Nigel Waterson: Will the Prime Minister take this opportunity to rule out the possibility of taxing the disability living allowance?

The Prime Minister: We published our proposals in our welfare Green Paper, and, as the hon. Gentleman will have seen, they did not include suggestions to tax disability living allowance. I should also point out that the previous Conservative Government made the biggest changes to the benefit system, removing some £2 billion from the disabled. Our proposals make it clear that money for the disabled will go to those who are seriously in need. That is the way it should be.

Mr. Llew Smith: Does the Prime Minister accept the view expressed on many occasions by his Lord Chancellor that, if the system of twinning constituencies for the election of candidates to the Welsh assembly is adopted, it will be unlawful?

The Prime Minister: Of course we are looking at all the different ways in which to try to increase the representation of women in the Welsh assembly and in the Scottish Parliament. I simply say to my hon. Friend, if he is opposed to us trying to do that, that I think that the fact that we have more than 100 women on the Government Benches is a great thing not only for the Labour party, but for Parliament, and we should be looking at ways in which to do that in the Welsh assembly and the Scottish Parliament, too.

Mr. John Swinney:: The Prime Minister may recall that, the first time that he answered questions as Prime Minister, 1 had the good fortune to be the first of the new Members to ask him a question. It is the only time that I have had the chance to do so before today. On that occasion, I asked the right hon. Gentleman whether he could give us a definitive time scale for the lifting of the European ban on the export of beef from Scotland to the international community.


The right hon. Gentleman could not give us a definitive time scale that day. After 12 months in office, is he any further forward in giving us a definitive time scale?

The Prime Minister: I cannot give the hon. Gentleman a specific date, if that is what he wants, because it is not possible to do that. I can say, however, that, for the first time, we have progress in that the Northern Ireland certified herd scheme is now through. I can also say—we hope very much that we have a reasonable prospect of achieving this—that there will be a date-based scheme that will affect Scotland and, indeed, all parts of the United Kingdom, which we can get to the Standing Veterinary Committee, probably in late May. That will be a considerable step forward. [Interruption.] As for the shouts from Conservative Members, we are having to debate this issue because of the mess that they left us.

Mr. Rhodri Morgan: Does my right hon. Friend agree that the devolution of

power to Scotland and Wales, and, subject to a yes vote, next Thursday's London referendum, show that the Labour party is interested in devolving power, and that that is the ultimate answer to all those who accuse us of being a bunch of control freaks?

The Prime Minister: As if we ever would be. Of course, as my hon. Friend would expect me to say, he is right. We are decentralising power to Scotland, to Wales and, of course, to Northern Ireland if the referendum goes through there—and, if there is a mayor for London, to London. I am pleased to say also that, having fought a general election campaign on the basis that this would be a constitutional disaster, the Conservative party is now in favour of devolution to Scotland and to the Welsh assembly. From last night, it is also in favour of a mayor for London. By the time of the next election, I expect it to be in favour of the minimum wage, trade union recognition and our economic policies, too. That is a development that we welcome.

Sudan

Mr. Malcolm Savidge: (by private notice): To ask the Secretary of State for International Development whether she will make a statement on what action Her Majesty's Government are taking in response to the urgent and growing humanitarian crisis in the Sudan.

The Secretary of State for International Development (Clare Short): The cause of the terrible crisis in Sudan is the civil war. Since 1991, the Government have spent £136 million on humanitarian assistance. In February, I approved a further £4 million in response to a United Nations appeal. We can make more funding available. The problem is not lack of food supplies or money, but delay caused by the Government of Sudan in permitting access, and to get the food to the starving.
In our role as president of the European Union, and on behalf of all EU countries, we are issuing a challenge to both sides—the Government of Sudan and the factions in the south—to agree an immediate ceasefire, so that the necessary supplies can be delivered urgently. The quantities needed cannot be delivered quickly enough by air. We are liaising closely with the UN agencies and all the non-governmental organisations working in the area.
Obviously the immediate priority is to feed the starving, but the long-term answer is a peace settlement. The international community must impose maximum pressure on both sides to reach a peace agreement at the talks beginning in Nairobi on Sunday.

Mr. Savidge: I thank my right hon. Friend for her reply. I am sure that I speak for the whole House in saying that the Government have our total support in every effort they make to alleviate that appalling tragedy.
The House would also agree that we should praise those sections of the news media that have sought to publicise the crisis. I pay particular tribute to BBC television, which has helped to bring home to us the appalling suffering and personal tragedies that underlie the stark statistics—tens of thousands of people facing immediate death, and several hundreds of thousands facing the longer term threat of famine.
Will my right hon. Friend continue and increase her efforts, in conjunction with other appropriate Government Departments and the Governments of other countries, to ensure that increased aid gets through to those in need? Will she put the maximum possible pressure on the Government of Sudan not to obstruct aid transport? Above all, as my right hon. Friend said and as the Prime Minister said in Prime Minister's Questions, in conjunction with the combined world community we must do everything that we can to bring to an end that terrible war, which has lasted for nearly 15 years, and has cost 1.5 million lives through fighting and famine.

Clare Short: My hon. Friend is absolutely right. Some 300,000 people are in danger of starving. Food and money are available, but we cannot get the food through. It is absolutely imperative for the media that have brought the crisis to international attention to keep the pressure on the right places: on the factions in the south and the

Government of Sudan. We need an immediate ceasefire so that we can get food through; otherwise, the famine will spread and even more people will suffer and die.
There are more refugees and internally displaced people in Sudan than anywhere else in the world. As my hon. Friend said, the war has gone on endlessly. It is causing loss and desperate suffering, and the whole international community must increase its efforts to get a ceasefire and peace, so that the people of Sudan can rebuild their lives.

Sir Alastair Goodlad: Does the Minister accept that Opposition Members share the revulsion of people everywhere, expressed by the hon. Member for Aberdeen, North (Mr. Savidge), at the inhumanity of those who are blocking emergency food supplies to the starving?
Can the Minister tell us a little more about the discussions that she and her officials have had with the United Nations and its agencies about achieving a peace settlement? What discussions have there been with the Sudanese Government and the leaders of the Sudan People's Liberation Army on delivering aid to the south? Does she think that the Operation Lifeline Sudan agreement is now adequate for the problem? If not, what should replace it? What leverage do the British Government and the European Union have over the Government of Sudan?

Clare Short: This is another issue on which we completely agree, and we must use all our influence and endeavours to exert the maximum pressure in order to get some improvement. I know that that is the right hon. Gentleman's aim.
Our major liaison with the UN agencies is in respect of the delivery of humanitarian assistance, and it always has been. I have met the Secretary-General's envoy from time to time, and we are liaising, although the job is extremely difficult. People are suffering and desperately need peace, but the Government of Sudan and the faction leaders are not suffering and do not want peace.
The surrounding neighbouring countries are leading the endeavour to achieve peace. The Intergovernmental Authority on Development—or IGAD, as it is inelegantly known—has been working hard since 1994. Apart from the tragedy and suffering in Sudan, the war spills over into other countries. The Lord's Resistance Army in northern Uganda is almost unquestionably supported by the Government of Sudan, so the trouble and conflict spread into neighbouring countries and endanger their economic development and their chances of eradicating poverty.
We are backing, in every way we can, the initiative of the neighbouring Governments. The Sudanese Government are extremely difficult to deal with. Limited sanctions have been imposed on them, called for by the Security Council. We are implementing those in terms of visas and travel permits, but we have an embassy in Khartoum, and we apply all the pressure we can.
Operation Lifeline Sudan, the UN umbrella under which all the NGOs and people working in Sudan operate, is the best we have available. It is extremely difficult to deal with a fickle Government and fickle factions fighting in the south, all of whom have blocked the delivery of humanitarian assistance when it suits their purposes.


Unfortunately, we do not have enough leverage to achieve more, but no Government can say that they have done enough in this appalling tragedy—we must all try harder.

Ann Clwyd: I congratulate my right hon. Friend on her immediate action to provide humanitarian relief. I know that she will continue to do so, and to do everything possible to get aid to the children and adults in dire circumstances whom we have seen nightly on our television screens. As she said, a political solution must be achieved. Will she tell us more about the talks in Nairobi? Who will be taking part? Can we put pressure on the United Nations Security Council to consider the matter with great urgency, so that all possible pressure from all over the world can be brought to bear on the Sudanese Government?

Clare Short: I can assure my hon. Friend that we will provide whatever is necessary. The problem is not providing money; it is applying political pressure so that food can get through to people. We shall continue to do everything that we can. I gave the House some figures demonstrating our commitment. Much of that aid was obviously provided under the previous Administration, but more is available. The shortage is not money: we shall ensure that that is provided.
Talks took place last October between the neighbouring Governments—the IGAD group—but no progress was made. Those talks will resume on Sunday. The first priority must be a ceasefire, so that humanitarian aid can get through; then pressure for a settlement must be applied. The war is benefiting no one. Under the Organisation of African Unity, all African Governments agree that countries in post-colonial Africa have to remain within their existing boundaries. A decentralised solution would be right. If that is to be the solution, why, for goodness' sake, cannot we make peace now and end the people's suffering?
I agree with my hon. Friend that every country and political institution must examine how it can increase pressure to achieve peace and allow assistance to get through. None of us can be complacent.

Sir Peter Tapsell: Is the Secretary of State aware that, when I first visited the Sudan, half a century ago, it was one of the best administered countries in what is now called the third world? Sudan was then known colloquially as the country where the blacks were governed by the blues, because, to get into the old Sudan civil service, one needed not only a first-class honours degree from Oxford or Cambridge, but a blue or two blues.
In too many countries in the third world, the problem is political rather than economic, and it is sheer cynicism and cant to think that it can be solved by financial aid and medicines. Unless the civilised world community is prepared once again to take effective political control of those countries, millions of innocent women and children will continue to be massacred.

Clare Short: One hears some strange attitudes expressed. The hon. Gentleman seems to be advocating the recolonisation of Africa, which is so foolish that I do not for a second believe that he means it.
It is notable that, in the post-cold-war world, in which are conflicts no longer played out between the two great blocs, it is in the poorest countries that war is breaking

out. The history of this country, of western Europe and of north America shows that, in times of great poverty, it is difficult for countries to deliver fruits to all their people, and if they are not careful, conflict results. That has happened in Rwanda and many other countries.
I do not know enough about Sudan's history to comment on the position 50 years ago, but the Sudanese Government have a major responsibility for the present problems, as do the leaders of the factions in the south. They are pursuing the war at the cost of their people and their country. That is intolerable, and the whole world should disdain them for that and call for peace. However, the recolonisation of Africa is a foolish idea.

Dr. Jenny Tonge: Is there anything that the Government and the international community can do to ensure that aid reaches the starving people in Sudan, and is not, as is reported to have occurred, gobbled up by the soldiers of the warring factions, particularly in the south of Sudan? Are steps being taken to ensure that the surrounding countries, which are also very poor, will not be flooded with refugees from Sudan with whom they may be unable to cope?

Clare Short: In all difficult humanitarian situations, the misuse of aid and humanitarian assistance by fighters is a major problem. It happened in Bosnia, as the hon. Lady will remember. In Rwanda, humanitarian assistance fed those who organised the genocide, strengthened them, and helped them to arm themselves in order to return to Rwanda to kill witnesses to the genocide, as they are doing now, and to destabilise the country. That is a continuing problem, and we shall do everything in our power to prevent it.
There have been similar problems in Sudan, but the present crisis is so great—so many people are in imminent danger of death—that, if we do not achieve a ceasefire and get supplies through, there will be the most terrible tragedy. In comparison, the problem of some fighters receiving resources would be minute. We must all press for a ceasefire.
There is a great refugee problem in surrounding countries, which is another problem for Africa. There is so much war in Africa, in some of the poorest countries in the world, and some of those countries have higher numbers of refugees, with all the associated problems. There is no doubt that surrounding countries are burdened with large numbers of refugees. In this famine, people cannot get out of the war zone, and that is partly why they are hungry. They would prefer to be refugees than to be in their current situation.

Mr. Kevin McNamara: Is my right hon. Friend aware that, although we welcomed her reply to the hon. Member for Louth and Horncastle (Sir P. Tapsell), most of us would not like to see Cromwell back in Ireland?
Will my right hon. Friend tell the House to what extent she is prepared to challenge the Khartoum Government's position at the forthcoming IGAD conference? Whether or not we achieve a ceasefire, we should be able to ensure that basic relief will go to starving mothers and children in southern Sudan, and try to ensure, if necessary by a


military presence, that flights will arrive, help will be given, and the armed forces of either side will not interfere with it.

Clare Short: The right solution lies in that challenge. I shall not be at the talks, as neither the British Government nor I have a place there. We are supporting the process, but we are not among the negotiators. However, I personally have issued a challenge to the Khartoum Government to let aid through, and, indeed, to leaders of the factions in the south, who are also resisting any suggestion of a ceasefire. The challenge goes out to all of them.
I note my hon. Friend's suggestion that a military presence might be considered. That is a matter for the United Nations, but I do not think that it is the main issue. If we can achieve a ceasefire, there will be no problem. The war is so difficult and remote that I am not sure that, even if there were a willingness to involve a military presence, it would get the food through at the necessary speed.

Rev. Martin Smyth: I appreciate the desire for a peace settlement, but does the Secretary of State recognise that the Khartoum Government are not happy about western interference, as they believe that we have hold of the wrong end of the stick when we accuse them of terrorism and of supporting terrorism? When we speak of food and aid, we should speak not only of the south, but of the north and west. Is it not a fact that the Khartoum Government are not allowing supplies to go through? Is it not time to we consider some other way to get them through—or are we relying on international boundaries?

Clare Short: The first thing I have to say to the hon. Gentleman is that the Government in Khartoum do support terrorism. There is no question about that in the cases of Egypt and of the Lord's Resistance Army in northern Uganda, which kidnaps young girls to make them into sex slaves, and young boys to make them into fighters. That disgraceful behaviour is destabilising Uganda, and is supported by the Khartoum Government. It is a matter of international record that the Government in Khartoum support terrorism, and they should be denounced for that.
The hon. Gentleman is right to say that there have been shortages in the north and west. Operation Lifeline Sudan does not hold hostage poor people who are suffering simply because they live under bad Governments. Where there is need, we must provide. For now, however, the crisis is in the south. We will fly in all we can, but we need a ceasefire to allow us to take in vast quantities of food. Otherwise, many people will die before it reaches them.

Mr. Tam Dalyell: I do not wish to create difficulties for my right hon. Friend by asking her to name countries, but do we know who is supplying the massive quantities of arms that seem to be going to one side, and probably to both? Who is paying for all that? Unless we get to the root of the arms supply problem, there is no chance of aid reaching the people it should reach. is it not

absolutely scandalous that highly technological countries are perhaps turning a blind eye to the human tragedy and to the consequences of what they get up to?

Clare Short: My hon. Friend is right. Obviously we must do all we can to deal with the immediate crisis, and we do not have time to deal with arms supplies in the short term when we need to get a ceasefire and get food through. Wars such as this cannot go on unless arms are supplied. In the past week or so the United Nations Secretary-General has issued an impressive report on Africa, stating where it stands and what needs to be done. It calls for a further reduction in arms spending by Africa, and a reduction in the supply of arms to Africa. At the spring meeting of the International Monetary Fund and the bank, Mr. Camdessus in particular said that those targets should be embraced by all the international institutions.
I agree with my hon. Friend that war is breaking out in the poorest countries and is causing suffering, overwhelmingly to civilians, and big refugee movements. The supply of arms must be reduced to help Africa to resolve conflict. Africa must build itself instead of wasting resources and people in war.

Mr. Andrew Robathan: The Minister has spoken about the Lord's Resistance Army in northern Uganda. As she knows, it operates out of Sudan, and is openly supported by the Sudanese Government. She probably also knows that it has kidnapped some 8,000 children, most of them for death or prostitution. Irrespective of whether the ceasefire ends, can the Government take any action to assist the Uganda Government in their struggle against the Lord's Resistance Army, if necessary in conjunction with her colleagues in the Ministry of Defence, or perhaps by the use of a training team?

Clare Short: As the hon. Gentleman will appreciate, I do not have the capacity or the knowledge to speak about any form of military assistance. We are providing significant resources to Uganda, whose track record on good governance and economic growth is a model for Africa, as the hon. Gentleman will know. Uganda has shown its capacity to go forward after terrible conflicts, and that brings optimism to Africa, because it suggests that many countries can be optimistic about the future.
We are keen to provide support in the north. I have spoken to President Museveni about whether support can help to stabilise some areas and strengthen the resistance of local people. We can examine development assistance in that way. The hon. Gentleman asks whether any military assistance could stop the evil abduction of children who are used as fighters or as sex slaves for other fighters. That is a monstrous way to conduct a war. I shall pass the hon. Gentleman's question about whether we can give such support to my hon. Friend the Secretary of State for Defence.

Mr. Gerald Bermingham: Am I correct in thinking that my right hon. Friend is effectively saying that there is no way to persuade the Government in Khartoum that the supply of food to the starving and the dying does not necessarily succour enemies but may create friends? Am I also right in thinking that there is no hope of the rebels also understanding that succouring the


dying and the starving may create friends rather than succour enemies? Perhaps somebody should try to convince both sides that it is the child, the woman, the young man and the not-so-young man who need to be fed if they are to have a place in our world.

Clare Short: My hon. Friend is right. I do not want to say that there is no way to convince people, because that is the opportunity for the international community. If everyone can see the cause of the problem and use world emotion to put pressure on those two groups of people to let the food through and create an imperative to make peace, we could make progress. As the famine grew, the Government of Sudan resisted entry, so that no one from the United Nations could get in to see the problem. Until the beginning of April, they resisted all flights, but now they are allowing some, so international public opinion has made some difference. It is still inadequate, but there has been a change.
We need more pressure on the Government of Sudan, and pressure on the factions that are fighting in the south. They are supposed to be fighting for the freedom of the starving people, but they are resisting a ceasefire that would let food in. Those are the areas in which international public opinion must exert pressure.

Mrs. Margaret Ewing: We all recognise that a long winding road must be followed before all the political complexities are resolved, but I suspect that the immediate concern of us all is for the starving people we saw on our television screens. As UNICEF, Christian Aid and other food relief organisations have identified the areas where the population is starving, what reasons internationally are preventing additional air drops of supplies, at the very least?

Clare Short: The problem is not money or food supplies. I say that repeatedly, only so that the world knows what the problem is and applies pressure in the right place—otherwise, everyone will start to collect money, which is not where the answer lies, as it will take too long and too many people will die.
The famine is accumulating in remote settlements over a massive area—the area is as large as Portugal, and is itself within an area the size of a big part of western Europe. To get food to people who are frail and sick is

an enormous job, and to do so through air drops is slow and difficult. If there were a ceasefire, lorries could be used to move in much more food much more quickly. In the meantime, we shall do all we can by air and through NGOs, but if we have only those options, many, many people will die.

Mr. Paul Flynn: Is there not is a lesson in this for us parliamentarians? We are discussing this today not because the Rev. Richard Rogers fasted for 40 days outside the Foreign Office last year, or because, over the years, hon. Members from both sides of the House have tabled early-day motions and questions pointing out that more people have died in the Sudan than in Rwanda, or even because of the efforts of my right hon. and hon. Friends on the Front Bench; but because television cameras happened to be on the spot—exactly the same happened with Ethiopia.
I rejoice in the fact that we are discussing the matter in detail, and that the emotions and compassion of the country have at last been aroused by this awful tragedy, but does my right hon. Friend-I believe that she and the rest of her team are doing an admirable job—agree that, in the long term, we should be proactive in drawing attention to such tragedies, and not rely on where the cameras happen to be? We should adopt such a long-term policy, so that we, rather than the media, control where attention is focused—on the worst crises.

Clare Short: My hon. Friend is right, but, as he knows, the media are increasingly fickle. As I keep saying, the world has now agreed on an international poverty eradication strategy. Everyone has signed up to halve the proportion of people living in abject poverty, to ensure that all children are in education, and that all people have basic health care by 2015—in most of our lifetimes, abject poverty could no longer be part of the human condition.
Such a stupendous and wonderful aim, which the world could achieve, is of no interest to the media. It is boring and long-term, worthy and noble. It concerns the future stability and sustainability of the planet. It would be the biggest advance in human history, and this generation could achieve it, as we have the agreement and the knowledge—but the media are not interested. We must keep working, but it is very sad that the media like crises, rows and conflict, and are not interested in great historical advances.

Questions to Ministers

Mr. Elfyn Llwyd: On a point of order, Madam Speaker, of which I have given prior notice to you and to the Under-Secretary of State for Social Security, the hon. Member for Southampton, _lichen (Mr. Denham). I make this point of order to you, Madam Speaker, as the defender of Back-Bench Members' rights and privileges.
On Monday, I drew the first question in Social Security questions. I asked the Minister—I paraphrase the exchange—whether all the decisions under the benefits integrity project relating to the withdrawal or lowering of benefits before 9 February of this year would be reviewed. The response was a single word: "Yes."
Yesterday, I received a letter, dated Monday, from the same Minister—I might add that, before he made that reply, he was whispered to by his right hon. Friend the Secretary of State for Social Security. It reads:
Following today's Social Security questions, when you raised the issue of reviewing decisions made under the Benefits Integrity Project, I thought you may find it helpful if I set out how we intend to take this matter forward.
We are concerned about cases where a decision was taken without the benefit of the new procedure introduced on 9 February and on which the claimant has not already sought a review of the decision. As you are aware, this new procedure will ensure that no decision to reduce benefit would be taken without seeking additional evidence. We are considering options for reviewing these cases, but there are some legal and operational issues which we need to resolve over the next few weeks".
He added that he would write again to advise on progress. What he said in the letter was, of course, directly different from his answer in the Chamber on the same day.
It seems that there are three possible options: first, that there was a deliberate effort to mislead Parliament; secondly, that there is a cavalier attitude to the truth; and,

thirdly, that the Minister was trying to be slick and clever by using a single-word answer. In my respectful submission, Madam Speaker, all three would constitute a contempt of Parliament, and I seek your guidance accordingly.

The Parliamentary Under-Secretary of State for Social Security (Mr. John Denham): Further to that point of order, Madam Speaker. I am grateful to the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) for the notice he gave, and I am pleased to have this opportunity to set the record straight.
I regret to say that I misunderstood the full implications of the hon. Gentleman's question on Monday afternoon, and that, in my desire to provide a positive answer to his important question, I gave a less than full reply; but I assure you, Madam Speaker, that there was no intention to mislead the House. I wrote to the hon. Gentleman on 27 April—the same day as my answer to his question in the House—to clarify my intentions.
On 9 February, my right hon. Friend the Secretary of State for Social Security introduced changes to the benefits integrity project to ensure that no decision to reduce benefit would be taken without seeking additional evidence. We are concerned, as is the hon. Gentleman, about those cases where a decision was taken without the benefit of the new procedure that was introduced on 9 February, and on which the claimant has not already sought a review of the decision.
We are considering options for reviewing those cases, but there are some legal and operational issues that we need to resolve as speedily as possible before deciding exactly how to proceed. I will, of course, ensure that the House is properly and fully informed of progress made.

Madam Speaker: That now puts the record straight.

Building Societies (Joint Account Holders)

Mr. John Healey: I beg to move,
That leave be given to bring in a Bill to secure equal rights for second-named and subsequent-named account holders of building society joint accounts in respect of distribution of assets on the takeover or conversion of a building society.
I do so with the support of many hon. Members whose constituents have consulted them over problems caused by the legislation as it stands.
My Bill aims to amend the Building Societies Act 1986 to ensure that people who have a joint account but whose name is not the first on the policy are treated fairly in any future cash or share windfall when their building society converts to a plc. My Bill does not attempt to change the qualifying period for such bonus payouts. It does not alter voting rights, and it is not intended to be retrospective.
This afternoon is the first shot in a campaign to convince Ministers and the House of the need for change. There are 71 continuing mutual building societies in the United Kingdom, and they have around 16 million customers. Those societies argue that they offer their members higher saving rates and lower mortgage rates, and that mutual societies can take a long-term view on business because they are not driven by short-term shareholder concerns. Some of those 71 will, however, convert. Birmingham Midshires wants to. The Nationwide will vote again shortly on whether to do so.
I do not want people with joint accounts in such societies to be caught in the same trap as a divorced mother in my constituency, Mrs. Whittaker. Her ex-husband left six years ago. Since then, he has not paid a penny towards supporting their kids or paying the joint mortgage.
The Halifax would not allow Mrs. Whittaker to remove her ex-husband's name from the mortgage—although it was happy for her to take on alone the mortgage arrears and repayments. Last year, when the Halifax became a bank, Mrs. Whittaker's ex-husband received all the shares, which he cashed in, thereby pocketing £1,750. Mrs. Whittaker received no share of the windfall, although Halifax's chairman told me that the board thinks that its scheme is "fair and equitable". The Halifax has just reported first-year profits of more than £1 billion.
It would be wrong to point a finger only at the Halifax, as I have received hundreds of letters from people across the country about other organisations—such as Abbey Life, Northern Rock, Alliance and Leicester, the Woolwich, and others—which have acted in the same manner. Moreover, it is not difficult to understand why those companies have acted as they have. By restricting windfall shares to voting members—who are defined as the only or first-named person on an account—the companies increase the potential amount gained by those voting if the takeover or conversion proceeds.
Former building societies argue that they cannot extend bonus payouts beyond those who are voting members. However, last year, my hon. Friend the Economic Secretary to the Treasury made it clear in a letter to the National Association of Citizens Advice Bureaux that that legal excuse was wrong. She wrote:
The Act does not compel a society which plans to convert to focus its distribution scheme only on voting members, nor does it prevent a society from making arrangements to take into account

savers who for any reason … were not first-named on the account. The societies who recently converted could, therefore, have devised different schemes at the start of the process".
The Building Societies Association agrees. In other words, it is a matter not of can't but won't.
Nothing in current legislation prevents building societies from devising schemes that treat their account holders more fairly. However, nothing requires them to do so. My Bill aims to create such a requirement.
The Government are yet to be convinced of the need to create such a requirement. Their reluctance to accept the need for action stands in stark contrast to the rightly tough stance that they have adopted on the mis-selling of private pensions. On the building society issue, Ministers argue that trust law covers the problem, and that the courts offer the remedy. Court action has never been an option for Miss Whittaker.
Last week, in a letter to me, the National Association of Citizens Advice Bureaux stated that it was
unrealistic to suggest that people who did not qualify for shares could pursue another named account holder in the courts. Many CAB clients"—
such as Mrs. Whittaker—
are on low incomes and could not afford to use a solicitor to pursue a case. A small claim might conceivably be successful, but it would be extremely difficult to enforce any judgment. The Lord Chancellor has readily acknowledged the difficulties of enforcing small claims judgments.
My aim, therefore, is to create a general framework to ensure a fairer distribution of windfall benefits among joint account holders when their building society becomes a bank.
We require also an independent complaints mechanism to deal with individual cases that are grossly unfair or unjust. My Bill therefore attempts also to extend the legal competence of the building societies ombudsman. Currently, the ombudsman may investigate complaints about the operation or termination of accounts, but he cannot investigate the terms of a conversion; incorrect, misleading or incomplete advice on action to preserve benefits in a conversion; or the failure to advise on the effect of name order on a joint account. It is high time he could, especially as almost half the initial complaints that he received last year concerned conversions.
For the sake of fairness for the millions of joint account holders still with mutual building societies, I hope that the House will grant me leave to bring in the Bill.

Question put and agreed to.

Bill ordered to be brought in by Mr. John Healey, Ms Sally Keeble, Mr. Lawrie Quinn, Mr. Austin Mitchell, Ms Joan Walley, Mr. John Austin, Dr. Brian Iddon, Ms Rosie Winterton, Ms Gisela Stuart, Mr. Dennis Turner, Mr. Michael Wills and Mr. Ernie Ross.

BUILDING SOCIETIES (JOINT ACCOUNT HOLDERS)

Mr. John Healey accordingly presented a Bill to secure equal rights for second-named and subsequent-named account holders of building society joint accounts in respect of distribution of assets on the takeover or conversion of a building society: And the same was read the First time; and ordered to be read a Second time on Friday 3 July, and to be printed [Bill 182].

Orders of the Day — Finance (No. 2) Bill

(Clauses 1, 7, 10, II, 25, 27, 30, 75, 119 and 147)

Considered in Committee [Progress, 28 April].

[MR. MICHAEL J. MARTIN in the Chair]

Mr. Nick Gibb: On a point of order, Mr. Martin. I refer to the point of order that I raised yesterday regarding the draft regulations in connection with clause 30, which were not available to hon. Members until yesterday afternoon, 24 hours after our debate on that clause. I asked the Deputy Librarian why the draft regulations were not there when the Government said that they had been placed in the Library. She sent me a note saying that the copies that were purported to have been sent to the Library had not yet been found and that they may have gone missing because the Treasury did not follow the relevant guidelines for submitting documents.
No Opposition Member is claiming that there was a deliberate move by Treasury Ministers to keep the documents away from us, but there is an element of neglect and carelessness, and I regard that as contempt of the Committee. Given that the Bill is packed with other clauses that will give rise to many other regulations, may I ask Ministers, through you, Mr. Martin, to confirm that, when draft or other regulations in connection with the Bill are published, they will send copies to each member of the Committee before they are placed in the Library?

The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin): The hon. Gentleman's latter point is not a matter for the Chair. I can only repeat what I said yesterday. We have moved on from the clause that he mentioned, but the Minister will have heard his comments.

The Financial Secretary to the Treasury (Dawn Primarolo): Further to that point of order, Mr. Martin. The hon. Gentleman raised with me yesterday the point about whether correct procedures were followed. I have investigated the matter, and found that we followed the normal procedures. I have also asked him to send me the letter from the Library, and I will absolutely ensure that procedures are followed and that whatever happened to lead to the regulations being in the Library without Library staff being aware of the fact will not happen again.

Clause 119

TAPER RELIEF FOR CGT

Mr. Peter Lilley: I beg to move amendment No. 16, in page 109, line 18, column 2, leave out '25' and insert 'nil'.

The First Deputy Chairman: With this, it will be convenient to discuss amendment No. 17, in page 109, line 18, column 4, leave out '60' and insert 'nil'.

Mr. Lilley: The existing system of capital gains tax is horrendously complex, which, above all, is because of the

indexing procedures, which protect investors from the consequences of inflation. The tax can also freeze capital that has been held long term and has made a large gain, which people are reluctant to realise. There was considerable attraction in scrapping indexation and replacing it with tapered taxes. I have floated such a scheme, subject to certain conditions, and the Confederation of British Industry and the Institute of Directors expressed interest in principle in the idea.
The Government's proposals, however, are running into increasing flak now that they have been published in the Bill. Hon. Members will receive representations from several sources attacking those proposals for a variety of reasons. Why has that happened? I believe that it is because the wrong sort of consultation was carried out on reform of capital gains tax. The Government asked for ideas, but people were not given a specific proposal to focus on or to get their teeth into.
I received a letter from a constituent who is a distinguished accountant, who writes:
The capital gains tax changes show the difficulty of moving directly from a very wide-ranging consultation exercise, for which the Government set no parameters, to an announcement of legislation with immediate effect.
It is extraordinary that the Government kept their basic proposals secret throughout the consultation and sprang them on us fully fledged—deus ex machina—in the Bill. We cannot give them the sort of consideration that a proper consultation would have allowed.
The proposals are a dog's breakfast, partly because the Paymaster General has, as usual, played a major part in preparing tax reform, which is his responsibility. He is not familiar with capital gains tax because most of his holdings, such as TransTec and so on, are in the Channel Islands and escape it. He can be excused; his vast business experience has given him first-hand experience of other taxes, but not of that one, so he is perhaps the wrong person to hold such responsibility.
A few weeks before the Budget, I tentatively suggested that a tapered system might be considered and that the key condition must be that the tax rate on assets held for a period, up to 10 years, for example, should come down to zero. Without that, capital gains tax would become a tax on inflation and on the rise in the value of assets, which merely reflected the deterioration in the value of money—in effect, a wealth tax.
That is what the Government put forward. Their proposal means that a person who held assets for 10 years would be liable to pay tax on 60 per cent. of the gain, even if inflation remained at the target rate of 2.5 per cent. He would pay about 0.6 per cent. per annum of his wealth to the Government in wealth tax. The proposal is of similar magnitude to the previous Labour Government's wealth tax proposals, which the hon. Member for Dudley, North (Mr. Cranston) is about to defend.

Mr. Ross Cranston: When the right hon. Gentleman floated his idea, the press reported that City institutions were taken aback by the fact that he had reversed his previous stance. The press also expressed surprise about where he was going on capital gains tax generally, because he also floated the idea of abolishing capital gains tax. Will he tell us his policy on that?

Mr. Lilley: I saw no such reports. Many people welcomed my proposal, particularly at the prestigious


financial gathering to which I addressed it. Some leading firms of accountants also welcomed it. They welcome it all the more, now that they have seen the Government's failure to take into account the conditions that I specified and which the Government ignored.
Our amendments propose that the tax should come down to a zero rate for long-term gains. That is a reasonable proposition. I believe that several countries have zero rates for long-term gains. Such rates come in considerably earlier than would be the case if the phasing that the Government are proposing were to be implemented. They cannot suggest that this is unfeasible or impractical. Abolition would be a step in the right direction, because the one area where our taxes are if anything more onerous than they are abroad is taxes on capital. We should be moving in the direction of alleviating that burden, not adding to it. I fear that the Government's proposals will add to the burden of capital gains tax. I shall return to that shortly.
There is another bizarre consequence of the spectrum of rates that the Government have proposed. The total number of rates of tax that can apply over a 10-year period is measured in the low dozens as a result of the basic and upper rates of tax. For the first time, there are separate rates for business and private assets, and rates will vary from year to year. The consequence is that, over the medium term, the rate of tax that people pay on real gains could work out substantially higher than the current 40 per cent. Even in the longer term, that could happen if inflation is high or money gains are low.
If inflation remains at only 2.5 per cent. a year, people's private assets will have to increase by 5.2 per cent. a year for 10 years to have a lower tax rate than 40 per cent. on the real gain being made. If they make less of a money gain than 5.2 per cent. per annum over that period, they will pay a higher rate of capital gains tax than under the present system.
The system is worse still in the interim. When the assets have been held for only three or four years, people could pay a real rate of tax of 60 per cent. or more. Is that the Government's intention? Do they want to penalise people who realise gains in the medium term if those gains are comparatively modest? If so, why? I do not know whether the Financial Secretary or the Economic Secretary will reply.

Dawn Primarolo: indicated assent.

Mr. Lilley: I am glad that the hon. Lady is noting down that question, and I look forward to her explanation of why this rather bizarre pattern has been incorporated in the Bill.
With the changes goes the abolition of retirement relief, which exempts entrepreneurs who have built up their businesses and sell them when they are over 50. That sensible reward for entrepreneurship is being entirely withdrawn. The result will be that people who make a real gain on businesses that they have built up and who otherwise fulfil the conditions for the relief will be worse off under the Government's proposals if the gain is £500,000 or less.
However, as the Forum of Private Business points out,

at the other end of the spectrum, a business owner who makes a gain of £2 million on selling an enterprise will be £350,000 better off than under the present arrangements. The Forum of Private Business rather tartly comments:
That is not the sort of redistribution of wealth that one might have expected from a Labour Government.
Again, we should like an explanation from the Financial Secretary.
Did the Government intend, or was it an accident, that their changes to retirement relief should result in a system whereby those who make small or modest gains in their business life have to pay more tax and those who make rather larger gains have to pay less tax? The Institute of Directors points out that it would be perfectly possible to vitiate that effect by changing the present structure of rules on the size of reliefs and the points at which they come in, from £250,000 and £750,000 slices to £100,000 and £300,000. Are the Government deliberately failing to do that, or did they just make another mistake of the sort with which we are becoming familiar?
There is a special transitional problem. Retirement relief is being phased out over the years 1999 to 2003, but the gain on a business asset cannot fall to 25 per cent. of the full gain until 2007 at the earliest. Therefore, there is a period between 2003 and 2007 in which one relief has gone, but its replacement—such as it is—has not fully arrived. That is an urgent problem for entrepreneurs who have planned to retire in that period. It should be solved by phasing out retirement relief—or preferably phasing it down to a new reduced level—over the period to 2007 and not to 2003.
That is the suggestion of the Institute of Directors, and I commend it to the Government for their consideration. I look forward to hearing Labour Back Benchers support the perversity of the changes, which clearly hit small business harder than bigger business and which have a redistributive effect that is the exact opposite of that for which we were led to believe Labour—at least, old Labour—stood.
The 30-day rule clearly was not thought through. It was designed to put an end to bed-and-breakfast transactions, whereby people sell shares and buy them back overnight in order to realise their gains and make use of their personal reliefs. The Government did not think it through and, within hours of the announcement, the City had come up with devices involving futures transactions that enabled those who are sufficiently well off to use such devices to circumvent the rule. Not everybody can do that, so it would be better not to have the rule, in the interest of fairness.
Not to have the rule would also be in the interest of operational feasibility. One of the principal companies involved in providing financial software—a company called Financial Software Ltd.—has pointed out that it is almost impossible to revise existing programming systems to cope with the new 30-day identification rule. The company states:
From a technical perspective, the Inland Revenue seems not to have considered the effects of any corporate reorganisation within this new 30-day period identification rule. The implications are that large chargeable gains or allowable losses can be immediately crystallised and these effects are hidden to the extent that investment managers can find themselves caught out
by such changes unexpectedly happening in a 30-day period when they are selling and intending to buy back shares.
The Government appear to have created a system that cannot properly operate. My hon. Friend the Member for Sevenoaks (Mr. Fallon), the shadow Financial Secretary, wrote to the Paymaster General about that and other measures, and received a letter in reply that referred to the implications for married couples. The Paymaster General said that the 30-day rule will effectively not bite on married couples; if one of the individuals sells shares and the spouse buys them back within that 30-day period, they will not be caught.
It is heartening, to some of us who thought that the Labour Government were in the business of removing every recognition of the married state from the tax system, that bed and breakfast will be allowed to continue as long as it is in the marital bed, but it is odd, and we should like clarification from the Government as to whether that is intended and whether it will persist.

Mr. Tim Loughton: Does my right hon. Friend agree that the ending of bed and breakfast mitigates most harshly against smaller investors, for whom the capital gains tax allowance of £6,800 is all the more important, and that, effectively, if they are locked into a successful investment that they do not want to sell, they will lose their £6,800 CGT allowance? Should not the Government come clean and abolish the allowance altogether if that is what they intend, and appear to be trying to do through the back door?

Mr. Lilley: My hon. Friend is absolutely right about the unfairness and the increasingly apparent, almost characteristically perverse, redistributive effect of Government measures, such as the capital gains tax relief changes and the changes connected with the introduction of ISAs, which penalise smaller investors and smaller savers while relieving larger and top-rate savers. However, I regret the fact that my hon. Friend suggested that the logic of the Government's position is to eliminate capital gains tax relief entirely, because I fear that, once it is lodged in their head, the Government might find the idea irresistible.
Taken as a whole, the proposal is a dog's breakfast. It is a wealth tax by the back door, a tax on inflation and, almost certainly, yet another tax-raising measure. The Red Book shows a loss of some £25 million of revenue followed by an increase of some £25 million of revenue in the subsequent year, but there is no sign in the Red Book, or in the accompanying press release, of the long-term impact on capital gains tax revenues that is expected to result from the change.

Mr. Cranston: Has the right hon. Gentleman made any calculation of the revenue effect of his amendment?

Mr. Lilley: One of the conditions that I specified in my original proposals, which effectively contained the amendment, was that there should be an attempt to introduce them in a manner that was revenue-neutral, if possible. I believe that that is possible, because a tapered system will encourage more transactions when the rate

reduces to a more reasonable level, so revenues would rise, not fall. That is the sort of Laffer effect that one would anticipate in these circumstances.
However, we cannot make such calculations if the Government will not give us figures for the long-term consequences of their proposals. How can we calculate the revenue effect of the amendment, when it would amend something the consequences of which the Government have kept secret?
I want the Minister to tell us the long-term implications of the measure. I am not the only one who believes that it will be a revenue-increasing measure and a further tax burden; most accountants and experts to whom I have spoken arrive at the same conclusion, from their own estimates. However, we would welcome any clarification from the Government as to whether they have made any estimates of the long-term consequences of the changes; if so, we should like to know what they are.
Later we shall ask the Committee to vote on amendment No. 17, which effectively eliminates the wealth tax effect of the measure, by reducing the long-term capital gains tax rate to zero. I hope that, when the opportunity comes, hon. Members will join us in that vote.

Mr. Douglas Hogg: I shall briefly support what my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, on the basis that I regard capital gains tax shorn of indexation as unjust and wrong in principle. In that regard, I differ slightly from my right hon. Friend.
I cast my mind back to Finance Bills in the early 1980s, when, for a short time, I was parliamentary private secretary to Sir Leon Brittan. At that stage, the pressure for indexation from throughout the House was intense. This was in a period of high inflation, and people objected intensely to paying tax on paper gains. I believe that that view permeated all parties in the House. I served on the Finance Bill Committees of the early 1980s, and I seem to recall that the Labour party strongly supported the proposal for indexation. Indeed, the criticism levelled at the Government of the day was that we did not backdate indexation further than we did.
I strongly disapprove of taxation on paper gains because it is unjust in principle; and anything that dilutes that principle is highly objectionable to me. [Interruption.]

The First Deputy Chairman: Order. I know that there are difficulties with these electronic pagers, but this is the second time that one has sounded off. Will whoever owns the pager take it and throw it outside the Chamber?

Mr. Hogg: I was about to say that there is a fundamental difference between the taper being argued for by my right hon. Friend the Member for Hitchin and Harpenden and the one being argued for by the Government. The taper argued for by my right hon. Friend has a nil rate for long-term holdings. That is a distinction not just of degree but of kind, because it obviates the charge of a wealth tax. If my right hon. Friend were ever in a position to abolish indexation—I hope that he would not—I welcome the fact that he would ensure a nil rate on the taper for long-term gains.

Mr. Barry Gardiner: Does the right hon. and learned Gentleman accept that doing away with


the tax, as he advocates, would erode the revenue base because it would spark a flight from income into capital, which in turn would have a deleterious effect on Government revenues?

Mr. Hogg: The hon. Gentleman overlooks the fact that we have had indexation of the kind for which I am arguing since the early 1980s. It is the Government who are seeking to change it. Left to my own devices, I would make no change whatever—with the possible substitution of a taper, but only in the event of indexation remaining.
My strong desire is to retain indexation. It is no answer to aver that we live in a time of low inflation. So we do, and a jolly good thing it is—it is the legacy of a Conservative Government—but we may not always live in times of low inflation. Inflation may rise. At that point, if these proposals are carried, people will have to pay tax on paper gains.
There are also a number of practical disadvantages. If a tax system is introduced which many people find intrinsically unjust, as they do when it comes to paying tax on paper gains, they will distort their investment decisions. I am against artificial investment decisions. There is also a great danger that people will enter into certain contrivances to avoid what they regard as an unjust tax. That will reduce the revenue yield, and it would probably be unlawful. For that reason, too, I oppose the idea.
Like many hon. Members, from time to time I have had to calculate capital gains with regard to the indexation tables. There is nothing unduly complicated about that. I am not a man for figures—in fact I am rather bad at them—but even I, armed with a calculator and the weekly schedule set out in the financial pages, have no difficulty calculating capital gains. But the taper calculation looks extraordinarily difficult. The consequence will be that people who would not otherwise be so driven will be driven into the arms of accountants—I did not know that that was part of the Labour party's policy—and that they will find extreme difficulty with the self-assessment that is now part of the tax regime.
I am therefore strongly against the payment of tax on paper gains. I believe strongly in indexation. It was introduced in the early 1980s to redress a real sense of injustice that was felt throughout the House. I have heard no argument in this place for changing the regime that we put in place in response to widespread public demand.
As my right hon. Friend said, the proposal will result in higher tax burdens for some people, probably—perversely—those with more modest holdings. It will drive people into the hands of professionals, whereas we would commend to the Treasury an approach simplifying the tax policies that we pursue. I hope that the Government will reflect further on their approach, and I should like to think that the proposal will be withdrawn.

Mr. John MacGregor: I strongly support the amendment. I shall be able to do so briefly, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) has accurately presented all the arguments.
I say to my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg) that I have always been in favour of tapering rather than indexation as a system for dealing with capital gains tax. I agree with

him that there was a strong feeling, which I shared, about the fact that before indexation, we had tax on paper gains, particularly during the period of very high inflation under the previous Labour Government. I welcomed the introduction of indexation, but I thought that it was a complex system, and that, if the Government wanted to encourage investment for the longer term, as well as to simplify the system, tapering offered superior advantages.
The tapering system that I had in mind was rather different from the one proposed. However, ever since I left the Government in 1994, I have been arguing in Budget debates for tapering for capital gains, so I gave an immediate welcome to the Chancellor's comment on indexation when he announced it in his Budget. I thought that it would simplify the system. Also, the Chancellor said in his Budget speech, I think, and it was stated on the front of the Inland Revenue press release, that the reform would help investment through the encouragement of the longer-term holding of assets, by reducing the effective rate of capital gains tax on longer-held assets.
That is precisely what I had hoped for, but I was deeply disappointed when I read on in the Inland Revenue press release and discovered that the proposed system was nothing like the system that I had in mind. That, I can tell my right hon. and learned Friend the Member for Sleaford and North Hykeham, would have been much simpler, and rather similar to the tapering system on inheritance tax.
For reasons of simplification and taking into account the need for indexation, the system would perhaps have taxed at the going rate of tax—40 per cent. for the higher-rate taxpayer—for, say, the first four years that the asset was held, then at 30 per cent. and the equivalent of basic rate for a couple more years, and it would gradually have been phased out after the asset had been held for seven or 10 years. Such a system would have been simple to operate on both sides.
I discovered that the Chancellor was proposing an entirely different system. First, it has not simplified the system. My right hon. and learned Friend is right: we now have 18 different tax rates instead of the system that we had before. I agree that it will be extremely complicated to work out where one stands on self-assessment.
The proposal does not encourage the holding of long-term assets, which was the objective set out at the beginning of the press release and in the Chancellor's statement. In many cases, particularly for gains on non-business assets, the new system will be less effective than indexation. In the first 10 years, when there is the tapering of the percentage of the gain chargeable, it will entirely depend on the rate of inflation and the growth in assets whether the tax works out to be heavier than it would have been with indexation.
The press release points out that the taper compensates for the loss of indexation only when there is real asset growth of 3 per cent. and inflation of 2.5 per cent., after six and a half years for business assets and 10 years for non-business assets. If inflation returns to above 2.5 per cent.—I sincerely hope that it does not, but it must be a possibility, as that has been the case historically—the period will be longer. During that time, those who are making capital gains will pay more capital gains tax and they will not be fully indexed compared with the system that the measure replaces. I suspect that, in many cases, it will not do what indexation does.


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Secondly, the proposal will not provide an incentive to those who seek longer-term asset holdings. After 10 years, the equivalent of indexation that is intended in the tapering disappears altogether. Therefore, after an asset is held for 10 years, there will be no compensation for inflation—whatever the rate—and no indexation. I regret that this is an opportunity missed. The Government could have simplified the system and encouraged longer-term holdings, but they have not done so. Therefore, I asked myself why the Government have missed that opportunity. I found the answer in paragraph 4 of the annexe, which states:
Various forms of taper were suggested to reduce the taxable gain over time, with many wanting it to operate over a short period and to reduce the gain to zero.
After 10 years, I think that it would make perfect sense to reduce the gain to zero. If we are to provide encouragement to longer-term holdings, we must provide some gain over and above inflation. It is perfectly reasonable to reduce the taxable gain to zero after 10 years. Why did the Government not do that? The next sentence gives the game away. It states:
These suggestions did not, however, consider the effects that such a taper would have on the yield from capital gains tax.
That yield will be realised 10 years from now, and not in the next few years. Surely there could be a small reduction in the yield 10 years from now in order to encourage longer-term investment and to achieve the benefits that I envisaged from the tapering system.
Treasury officials have said, "Chancellor, we cannot allow any reduction in the yield from capital gains tax, so we must have a system that prevents that from happening." That is exactly what has happened, and it is a great pity. The Government have missed the opportunity to simplify the system and to encourage the genuine longer-term holding of assets. At least the amendments of my right hon. Friend the Member for Hitchin and Harpenden deal with the situation beyond 10 years, and thus they should be strongly supported.

Mr. Quentin Davies: I shall start by declaring a negative financial interest. As you know, Mr. Martin, I am, and have been for several years, the adviser to the Chartered Institute of Taxation, which comprises distinguished accountants and lawyers who specialise in tax matters. The Government's proposals in the Bill will undoubtedly greatly increase the demand for their services, and thus will be a positive move for members of the Chartered Institute of Taxation.
Were I to feel some conviction to speak in favour of the proposals, I should probably be prevented from doing so by the advocacy rules of Parliament. However, I have read the Government's proposals for changing capital gains tax, and I feel that I must speak strongly against them. That puts me in a negative advocacy position, and I hope that you will not rule that that disbars me from speaking, Mr. Martin. It may mean that, by the end of the week, I am no longer adviser to the Chartered Institute of Taxation—but I am sure that that will not trouble you unduly.
Like my right hon. Friend the Member for Hitchin and Harpenden, I have always supported the introduction of a taper—but on the principle that it will result in a lesser burden of capital gains tax than occurs under the present

indexation regime. The one way of ensuring that that is the case is to determine that, after a certain period, there is a zero rate of capital gains tax. In other words, the taper goes down from something—presumably the appropriate marginal income tax rate of the taxpayer, and the same would apply if corporation tax were included in the proposal—to nothing.
Instead, the Government have brought forward a set of proposals under which we cannot know for certain whether the net burden on business, industry, investors, those who are trading as principals with business assets and those who have portfolio holdings of assets, will be lighter or greater than it is at present. That is because the proposed structure represents a gamble on the rate of inflation and on the real rate of return.
Sadly, we have come to the end of 18 years of Conservative government. We have become used to low inflation and high real returns on assets. That is a splendid thing for the economy. It is splendid also for those who have not yet come to own any assets that are likely to be the result of capital gains.
We must remember what happened when there was a Labour Government in the 1970s. We had extremely high rates of inflation, and for a number of years we had negative returns on several classes of assets as a result. The gamble that the Government propose to introduce into the tax system represents a pro-cyclical risk for the system. In other words, if things get bad—if they go from bad to worse, as they no doubt will do under a Labour Government—and real returns fall and inflation rates rise, asset prices will be eroded. There will be a reduced return on capital and a reduced incentive to invest.
The reduction in the value of assets will be further increased because of the application of this form of capital gains tax. That does not seem to be a sensible move to make. It is certainly not a reassuring move. The Government are putting forward to the House of Commons a tax regime that will make the country suffer even more from any mishandling of the economy by themselves than it otherwise would.
The new Labour Government lost the plot. Correctly, they picked up from various people, from the work being done in the academic world on the subject, opinion in the City and opinion in business, which we know that new Labour is so keen to conciliate. Not least, they picked up from the statements made by my right hon. Friend the Member for Hitchin and Harpenden and by others of us. When considering previous Finance Bills in Committee, as you will recall, Mr. Martin, I have supported the replacement of indexation by a tapering system. However, the Government have not realised that that makes sense only if the taper goes down to zero, and, strikingly, they have failed to do that.
The Government have not done their homework in many other respects. That is not surprising, because, as my right hon. Friend the Member for Hitchin and Harpenden has said, although this is a new Labour Government supposedly committed to open government and to consultation, they have not gone in for consultation. Of course they said, "Let us know what you think about capital gains tax." That is an open invitation. No doubt, there are people writing in to the Government constantly telling them what they should be doing about the regime for motor cycles, fast food, BSE or anything else. However, that is not consultation.


Consultation is when the Government, before bringing forward a proposal to the House of Commons, publish their proposal in draft to ascertain what those people who are likely to be affected by it, or others who take an interest in it—for example, the academic world, think tanks, the City and analysts—think of it. Thus, there is the opportunity for comment. The Government can then modify proposed legislation in response to the consultation exercise before bringing it forward to the House of Commons. That is how a sophisticated modern Government should operate, and that is certainly how to get better legislation than we have been receiving recently from the Government.

Mr. Cranston: I thank the hon. Gentleman for giving way, especially as I shall be a recipient of the Chartered Institute of Taxation's hospitality in the near future. 1 always hate to interrupt him in full flight and am always apprehensive about the sky falling in, because he gives so many reasons why it is about to do so.
Will the hon. Gentleman return to the point about calculating the precise effect? Is it not true to say that precise calculations can never be made because of the change in asset prices? Did not the right hon. Member for South Norfolk (Mr. MacGregor) rightly say that consultation had revealed a momentum in favour of the tapering proposal?

Mr. MacGregor: No, absolutely not—not in favour of this proposal.

Mr. Davies: My right hon. Friend tells me from a sedentary position that he strenuously denies that allegation, so I need say no more on the subject.
The hon. Gentleman does not understand the importance of incentives and risk in investment. That is a key issue. If people are to invest, they must feel that they will receive a rate of return that is commensurate with the risk. Anything that increases the risk of not receiving such a rate of return—that increases the risk of the return being negative, as the Bill does—is clearly a reason not to invest. To that extent, less investment will take place, resulting in less output and less prosperity in the future. That is not the new Labour Government's explicit objective, although it may be the indirect consequence to which some of their policies unfortunately lead.
If the Government do not listen properly to people, they will not fully understand the proposals that they receive. It is clear from the introduction of this taper that they have not understood them. When a Government decide on a proposal, they should put it out to consultation to see whether there are any shortcomings that they had not anticipated; otherwise, they will make avoidable mistakes. The Bill shows that the Government have made some extraordinary and blatant mistakes. Let me deal with one or two—or perhaps four or five—of them.
First, there appears to be a mismatch between the introduction of the taper and the withdrawal of indexation. Under the Bill, indexation will be withdrawn with effect from April this year, but the taper will not start to have an effect for another two years. The Financial Secretary is shaking her head. I shall give way to her with pleasure if she wants to intervene. From my reading of the Bill, it appears to me that, during the intervening two years, there will be no relief in the form of either the taper or indexation. That is extremely anomalous.
The Government say—we must believe in their sincerity—that they want to reduce the burden of capital gains tax. I have explained why they will not do so over time and why, in the immediate two-year period, they will increase the burden of capital gains tax. Those assets will not be reduced by the taper and the assets will not be eligible for indexation—[Interruption.] Does the Minister want me to give way? I was not sure about the hand signals that I was receiving. I was hoping that I had got it wrong and that she might have some good news for the country.

Mr. Douglas Hogg: I think that it was a plea for help.

Mr. Davies: Perhaps my right hon. and learned Friend can rise to assist the Minister, who is leafing through her Red Book.

Dawn Primarolo: Get on with it.

Mr. Davies: I do not wish to try the Minister's patience, but she was shaking her head and implying that I had got it wrong. When I offered to give way to her, she did not want to intervene. I must therefore conclude that the anomaly to which I have drawn the Committee's attention exists and I have not misread the Bill. The Bill is so complex that I could easily have misread it.

The First Deputy Chairman: Order. I am sure that the hon. Gentleman does not want to try my patience, but he will if he talks about the Bill in its entirety, because the amendment is narrow and relates only to the tapering of capital gains tax.

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Mr. Davies: The margin for the debate that you allowed us yesterday, Mr. Martin, enabled us to cover the ground well and to have only one debate and one vote on the issue, which might not otherwise have been the case. I should be perfectly happy to speak in the clause stand part debate, but the amendment focuses on whether the taper should be reduced to zero. That is the heart of the issue, and I hope that any remarks relating directly to the taper will be regarded as within the amendment's scope, but I must be guided by you.
The essence of the issue is whether the taper replaces the existing regime and, if not, to what extent there is a mismatch between the two regimes. I have already said that there is a significant mismatch between the withdrawal of indexation and the introduction of the taper.
There is also a mismatch between the introduction of the taper and the withdrawal of retirement relief. The taper is being introduced over 10 years, but retirement relief is being withdrawn over five years. That produces the kind of anomaly to which my right hon. Friend the Member for Hitchin and Harpenden referred. Business assets that, under the present regime, benefit from business retirement relief would be subject to a higher burden of capital gains tax in the intervening period than larger capital gains that do not benefit from such relief. That is anomalous.
Someone who sells business assets for £250,000 or £500,000 at present pays no capital gains tax if the assets are eligible for retirement relief. By 2003–04, when business retirement relief will have been phased out, the


effective rate of capital gains tax will rise to over 20 per cent.—a considerable burden—before falling back to 10 per cent., which is the Bill's target for the long-term capital gains tax rate for business assets. Where is the rhyme or reason in that?
The Government announced that the measure is good news for business, but it is not, and in the short term it is very bad news for many businesses. It will have a distorting effect because no one in his right mind will sell business assets during the next few years if he can possibly avoid doing so. It is extremely dangerous to introduce such distorting incentives into the tax system. I shall not digress on the damage that they can do to the economy. Clearly, in this case, people may hold on to business assets longer than is rational. Will the Financial Secretary tell the Committee whether that is an intended consequence of the Bill and, if so, what the rationale is for that? If it is not an intended consequence, what does she intend to do about it?
There is another mismatch between the introduction of the taper and roll-over relief, which the Bill apparently leaves unchanged. Proposed new section 2A(8), which defines the holding period, makes no reference to roll-over relief. I shall happily give way to the Financial Secretary if she wants to intervene to deal with this point now, but, if not, I hope that she will respond to it at the end of the debate.
Let us assume that someone has a business asset that he or she has held for, say, 10 years, and then sells a building used for business purposes. Let us say that that person rolls that capital gain over, under a roll-over relief regime, into the purchase of a new building, to be used for business purposes, and then sells that building after six months or two years—possibly involuntarily as a result of a compulsory purchase order by a local council, although that is not material to my question. In that case, would capital gains tax be charged at the full rate, without roll-over relief?
There is no reference in clause 119(8) to provision for roll-over relief, yet the purpose of such relief is that the new asset into which the gain has been rolled over should be treated as if there had been no change. It is sometimes necessary for businesses to dispose of certain assets and to buy others. They should not be inhibited by an enormous tax burden from making a sound business decision, or be penalised for taking such a decision. I see that the Financial Secretary does not want to intervene, but I hope that she will deal with that point.
Let me return to my introductory remarks. The Government have said several times that they are committed to simplifying tax; however, many opportunities to do so have not been taken. One would have hoped that getting rid of indexation and phasing out retirement relief would result in a reduction in the enormous complexity of Finance Bills, but I see no opportunity being taken to simplify the Taxes Acts, and that is regrettable.
Meanwhile, one opportunity is being taken greatly to increase the complexity of the Taxes Acts. Schedule 20, which is governed by clause 119, contains a definition of business assets that runs to more than four pages. Why did not the hon. Lady use the perfectly good definition of business assets in section 165 of the Taxation of

Chargeable Gains Act 1992? Why did she have the parliamentary draftsmen write four new pages of complexity? That is, of course, splendid for the members of the Chartered Institute of Taxation, who will be paid large, and no doubt totally deserved, amounts of money for re-interpreting to its clients the hon. Lady's four new pages of definition, but why reinvent the wheel?
The administrative costs of taxation are another important, and related, point. I hope that the hon. Lady is aware of some of the economic costs of taxation. I hope that the new Labour Government are committed—at least in principle, even if they are too incompetent to do anything about it in practice—to trying to reduce the economic costs of taxation and its administration to the greatest possible extent. Again, some obvious opportunities to reduce the administrative burden of taxation have been missed; indeed—sadly—the opportunity has been taken to increase the burden.
Taxpayers are going to have to maintain indexation records for their assets, which have to go back to 1982 if they are to claim indexation relief up to April 1998. They will then have to work out the taper from then on. My right hon. and learned Friend the Member for Sleaford and North Hykeham said that he found his indexation calculations quite easy; I admire that, but I have always admired Queen's counsel and luminaries of the bench, who no doubt have abilities not granted to lesser mortals. I must say that I find my indexation calculations a little more difficult.
The taper calculation looks like being even more complex, as there is no provision for pooling. One will have to keep an exact record of the date on which one bought each share. There is no system for averaging out. The worst thing of all is that one must now do both indexation up to April 1998 and a taper calculation on an individual security, or purchase and sale, basis from that time on. The hon. Lady has succeeded in doubling, or trebling, the administrative burden at a stroke.
That is, again, wonderful news for the Chartered Institute of Taxation. However—although I may not be forgiven in certain quarters for saying so—I cannot believe that that is a good thing for the taxpayer, the economy or the country as a whole. It is extraordinary.
I have a suggestion for the Minister which she may already have considered, in which case I should like to know why it was rejected. Why did she not use the opportunity of the Bill to re-base asset prices, ideally on this month? If that did not suit, she could have brought them forward from 1982 to 1992. Perhaps she will say that the cost to the Revenue of doing that would have been great, but I would find that difficult to accept in view of the relatively low yield of the tax.
What would have been the Revenue cost of adopting my suggestion? Her officials who made the calculations and offered her advice were not doing a proper job if they did not make that calculation. People ought to know the cost of re-basing asset prices at April 1998. Against that, we shall judge whether it was reasonable not to re-base because such a move would greatly lighten the administrative burden on the taxpayer.
The Government have made brave declarations. They have said that they want to help business, to have open government, to consult and to reform capital gains tax. Those are splendid aims, and I am not the only Conservative to urge a reform of capital gains tax.


Therefore, it would be wrong not to welcome that basic intention. However, in carrying out the reform, the Government have made endless mistakes and created perversities, and the result is that things are worse than when they started. That is worrying, and I shall draw attention to such matters throughout the Bill. I shall not mention them now because I do not wish to fall foul of the reasonable regime that has been established for the debate. Sadly, the theme cannot be avoided in the Bill, and it vitiates the whole of this far too long, complex and fundamentally inept measure.

Mr. Loughton: I support the amendment. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) has said, the changes that are proposed for capital gains tax are the biggest dog's dinner in the Bill. Although the amendment is not the ideal solution, it is the only obvious way to pull something from the fire.
When the Paymaster General introduced ISAs last year, he said that they were a test for financial products and financial innovation. He said that they should adhere to simplicity, flexibility, accessibility and fairness. I shall show that the taper relief proposals fail dismally on all those counts.
As my hon. Friend the Member for Grantham and Stamford (Mr. Davies) has told the Committee, the Financial Secretary has said that the Budget changes in capital gains tax will lead to eventual simplification of the current system. She did not qualify what she meant by eventual, but the changes are certainly far from simple. Capital gains tax clogs up the capital markets because it disadvantages the switching of capital to investments in which it can be used most effectively. That was one of the reasons for gilts being exempted from capital gains tax in 1969. If, as the Government constantly say, they are intent on promoting savings through new products, manipulating capital gains tax in the way that they propose will not achieve thatf—ar from it.
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Capital gains tax is not only inefficient, but one of the most expensive taxes to collect. Last year, it raised about £1.4 billion, inheritance tax brought in about £1.7 billion, VAT £51 billion and corporation tax £31 billion. The cost of collecting capital gains tax was more than 4 per cent. of the revenue that it raised, compared with a charge of 0.7 per cent. for inheritance tax and 2.1 per cent. for income tax. It is an inefficient and expensive tax for the Revenue to raise, and it is expensive for people to work out. It will cost people even more to work it out in future.
My first concern is that the proposals are unduly complicated. Currently, capital gains tax is charged at three different rates. As we have heard, the new taper will effectively introduce 18 different levels for a personal capital gain on which the three rates will be levied. That will require much more complex record-keeping and careful identification of when purchases are made, where equity shares have come from, and when rights issues and scrip dividends were taken up. There will be much more complex treatment for brought-forward losses.
As the Association of Private Client Investment Managers and Stockbrokers has said:
Now disposals after 5 April 1998 will be identified with acquisitions in the following order: same-day acquisitions; acquisitions within the following 30 days; previous acquisitions after 5 April 1998, latest first; shares in the pool at 5 April 1998; shares held at 5 April 1982; shares acquired before 6 April 1965.
The system is exceedingly complicated, and, it will be expensive for private client investors to work out. As my hon. Friend the Member for Grantham and Stamford has said, it will be welcomed only by the accountancy profession and the designers of computer software.
However, a conference of software manufacturers in the finance industry and tax specialists that was held last week, and which was reported in the Financial Times of 22 April, admitted defeat. There are so many "what ifs" in the proposals that it will be impossible in the foreseeable future to produce software programmes to make the calculations. They will have to be made manually by costly professional advisers at a time when private investors have the added complication of self-assessment.
The proposals are not fair. The new taper rates do not compensate for the abolition of indexation. For example, £1,000 that is invested now for the next 10 years will be worth £1,248 on the basis of the Chancellor's 2.5 per cent. inflation target over that time. Currently, no capital gains tax would be payable, ignoring the allowances. Under the new proposals, indexation will no longer apply, the 24 per cent. rating will come in for higher rate taxpayers, and a tax bill of £59 will be payable. That is tax not on a gain, but purely on inflation, if it adheres to the Government's target.
Over the past 10 years, indexation has been about 0.541, which is more than double the Government's annual retail prices index target. Scottish Widows has calculated that, on an investment of £100,000 with inflation at just over 5 per cent., which is reasonable over the past 10 years, and growth of about 8 per cent., which is not unreasonable in the light of what has been happening in the markets over the past few years, the tax charge would be £9,100 higher after year seven, or £6,600 higher after year 10, ignoring the annual exemptions, under the new proposals. The proposals will result in a serious hike in tax liability for many investors.

Mr. Gardiner: The hon. Gentleman makes much of the fact that the proposed system will be much more complex. Has he made similar calculations about the complexity that would be left in place by the amendment?

Mr. Loughton: I do not agree, for two reasons. First, the incentive provided by the tapering of the capital gains tax down to zero would more than outweigh the additional work that would be necessary in calculating the taper rates—that would be a big advantage. Secondly, like my hon. Friends, 1 want a far simpler system. The amendment was tabled because the proposals are a dog's dinner. We want capital gains tax eventually to be phased out, as we believe that it penalises long-term entrepreneurialism and long-term investment. The amendment would make the proposals eminently fairer, and we hope that the Government will accept it.
The proposals are also highly unfair because the brought-forward losses will now be matched against the most recently acquired stocks—in other words, those with


the smallest taper rate. The investor will lose yet again. The thrust of the changes is to impose a straitjacket on investment—even more than previously, the tax tail will wag the investment dog. There will be a severe straitjacket on prudent investment—we heard that phrase no less than 17 times during the Chancellor's Budget statement—and severe extra costs will be imposed on investors, especially on smaller ones.
There seems to be a new attitude that tax reliefs generally, such as the CGT allowance, constitute tax avoidance. We should not forget that, by abolishing indexation, the Government are devaluing the CGT allowance. That is also the implication behind the abolition of bed-and-breakfasting and retirement relief. Like the original ISA proposals to abolish PEPs, the changes are an insidious version of retrospective taxation. The harshest terms will fall on those coming up to retirement, who are least able to re-orient their finances to provide for later life as they have fewer earning years left.
What is wrong, for example, with a private investor buying shares in British Petroleum, which is a blue-chip United Kingdom company, holding on to them for two years, 11 months and 30 days, and then reinvesting the proceeds—presumably, the original book costs plus some profit—into another blue-chip company, such as Glaxo, or a unit trust, for seven years and one day after that? Why is that any worse than an investor buying BP shares on day one and locking them away in a cupboard for the entire 10 years? I hope that the Financial Secretary will answer that. We want flexibility in investment, but the proposal militates against that by imposing taxation constraints on sound, prudent investment judgment.

Mr. Quentin Davies: My hon. Friend asks an extremely pertinent question, to which I hope the Financial Secretary will give a clear answer. Does he agree not only that it is perverse to penalise the investor who—I use my hon. Friend's example—is in BP for two years and then moves into Glaxo, rather than someone who stays in Glaxo or BP for the whole time, but that the proposals are unfair to those who believed that their assets would be subject to an indexation regime, but find that, in the next two years, they can benefit from neither past indexation relief nor future taper relief? As well as being perverse, unfair and economically irrational, is not that retrospective taxation?

Mr. Loughton: My hon. Friend is absolutely right—the next two years will be a no-man's land for many investors. The changes would have had a shred of credibility if the Government had backdated the tapering relief to take account of more of the 10 years, and not applied it to day zero or to a two-year period, when the first 5 per cent. taper kicks in.

Mr. Gardiner: I appreciate the hon. Gentleman's giving way for a second time. In response to his challenge about an investment that is held for two years, 11 months and 30 days and then rolled over into a further investment for the rest of the 10 years, may I ask him whether it has escaped his notice that the amendment would provide a bigger incentive to maintain the same investment for the full 10 years than is proposed in the Bill?

Mr. Loughton: The hon. Gentleman has missed the point, as there would be a zero capital gain at the end of

the taper. Moreover, we do not want to abolish bed and breakfasting. The amendment would allow people to maintain the same good investment by using a perfectly legitimate taxation tool. It would also allow everyone to take advantage of the CGT allowance that the Government are retaining. The hon. Gentleman has the wrong end of the stick.
As the Association of Private Client Investment Managers and Stockbrokers said, the CGT changes will merely replace one complicated issue with another. It is difficult to find any of the simplification that individuals want and that the Financial Secretary seemed earlier to promise—the 18 new rates of capital gains tax do not represent simplicity.
Moreover, the innovation will be costly. From April 1999, there will be five levels of income tax—20 per cent., 23 per cent. and 40 per cent., as well as 10 per cent. and 32.5 per cent. on dividends. The Government want to attract millions of virgin investors into savings, but the plethora of extra record keeping that will be required hardly represents an incentive. The changes are not fair, as indexation abolition is not being compensated for by the use of tapers.

Mr. Geoffrey Clifton-Brown: I apologise if this point has been made—I was not here during the opening speeches, as I was upstairs in Committee—but does my hon. Friend agree that, as people are being encouraged to complete self-assessment tax forms, they will be driven by the changes into taking professional advice? The new rules will be outwith their capability.

Mr. Loughton: My hon. Friend is absolutely right. I fear that the implication is that people will be deterred from making individual investments, as they will either have to cough up for professional advice, or make a mess of it—that is most unfair.

Mr. Cranston: Will the hon. Gentleman give way?

Mr. Loughton: I shall in a moment, as it is always a pleasure to give way to the hon. Gentleman, but I want to make a few final points.
The use of losses will be less attractive in the future, but it is also highly unfair that the details of the Bill were not published until after the end of the financial year. Many practices were abolished on Budget day, so that investors had no opportunity to re-orient their investments. It is unfair that future investors should be penalised for an inflation rate over which the Government have no control—they have given it up to the Bank of England committee to determine as a target, and if the committee is wrong, the investor loses twice.

Mr. Cranston: Is it not also possible that investors will move into collective investment schemes, which not only would avoid some of the problems that the hon. Gentleman mentions, but could be advantageous for other reasons? Perhaps his background and the people with whom he associates distort his view of the ordinary investor, many of whom may indeed invest in collective schemes. While I am on my feet, may I also ask him whether he believes in capital gains tax at all?

Mr. Loughton: That was the most bizarre jumble of accusations. I worked in the City for 14 years, and dealt


with private investors ranging from the very poorest to the better-off—[Interruption.] Our doors are open to everyone—to people who save as little as £25 a month and to those who save a lot more. I have had experience of running not only individual equity investments, but pooled funds, which stand to gain from the complication that is being imposed on individual equity investment, so perhaps I have a more broad-based view and more expertise than the hon. Gentleman, who has been locked in the ivory towers of more legal academia, and perhaps has not got his hands dirty in the matter of making money, making people more wealthy, and contributing to the wealth of the nation and to future savings.
As I said plainly, capital gains tax is a penalty on enterprise, risk taking and long-term investment. Ideally, as we said clearly before the election, we would like CGT to be phased out eventually, but we realise how complicated and complex that would be. The Government did not realise that, and have fallen entirely into the trap of making an already complicated system far more complicated and costly to manage.
The Government's proposals fail on those counts. They are not at all flexible and accessible. They severely curtail the powers of the private investor to choose investments that are in his or her best interests. It is not in the best interests of a saver effectively to lock away an investment in a cupboard for 10 years and to forget about it. The proposals militate against prudent long-term investment, which I thought this Government were all about. I therefore support the amendment. It is one way out of a complete and utter dog's dinner.

Mr. Howard Flight: I also support amendments Nos. 16 and 17, as they would at least prevent the Government's proposals from amounting to a wealth tax, and would bring some justice and fairness to them. Before the election, I lost count of the number of times that I heard the present Chancellor of the Exchequer stress that he wanted fairness in his tax proposals, but, like others, my biggest objection to the clause is that it is extraordinarily unfair in the way in which it will bite, as well as extraordinarily complicated.
What is the objective of the changes? Are they a back-door way in which to bring in a form of wealth tax? If the objective is to simplify the capital gains tax regime, what is coming seems murderously complicated. Have the Government misunderstood quite a lot of the thinking that is going on? It would have been much fairer and less complicated if things had been left as they were. The changes will replace one reasonably complicated system with one that is even more complicated.
I will pick up on a few specific points that seem unsatisfactory and unfair. What is the logic of introducing such a disadvantage to investors who hold investments for up to three years? Why is it that they used to enjoy indexation relief and now will receive no relief whatever for three years? What is the logic of the three-year period before the taper starts?
What is the logic of last in, first out for the purposes of the calculation of gains? That can turn out to be extremely unfair, particularly for staff working for companies, where they do not qualify for business assets arrangements as they do not have anything like the 5 per cent.

of ownership for directors. However, where people add to shares, it is often in the context of the companies for which they work.
I echo the, if you like, reverse or negative advocacy point that was made by my hon. Friend the Member for Grantham and Stamford (Mr. Davies). As someone who remains a director of a business that runs collective investment schemes, I believe that the proposals are a godsend to the industry. They virtually force ordinary investors to use collective investment schemes. I think of retired people who get some enjoyment out of managing their capital after they have retired. Why should a gun be held to their heads by saying, "You have to use a collective investment scheme or you are going to have to deal with a murderously complex and unfair regime"?
The point has been made that the transition arrangements are grossly unfair, as is the principle of abolishing retirement relief. If we want a vibrant economy, we should encourage entrepreneurs. I mourn the number who have already left these shores since the Government came into power—there are echoes of the previous Labour Government's term of office in many British entrepreneurs' reactions to many of Labour's tax changes.
The crucial question has been asked: what happens if inflation rises? There is no guarantee that inflation will stay at 2.5 per cent. per annum. What is the logic of the arrangements for qualifying for business assets? We shall increasingly have a society in which many people own shares in the businesses for which they work. There is the requirement that a director should own 5 per cent., which is focused at the upper end of society. The business asset rules are not going to be of any benefit to the great and growing number of ordinary employees who we all want to see owning more shares in the businesses for which they work.
My vision overall of capital gains tax is that it should apply only when capital gains fall into consumption. When assets are swapped from one investment to another for perfectly good reasons, whether by businesses or by individuals, those people do not in any way realise and enjoy a gain. A route to cast capital gains tax in this direction and to stop people converting income into capital gains, which is the objection to its abolition, should be the goal for everyone, but what we have here seems far away from such a goal. There is a hidden agenda for a substantial wealth tax, which will cost individuals and the Revenue a fortune to calculate.
Another hon. Member has suggested that, if we are going to have a change of regime, at the least, there should be a case for rebasing, as in 1982 when indexation was introduced. We could go forward from there, but we should not have two different bases to calculate capital gains tax. There are not only 18 rates, but two completely different sets of calculations for everyone to have to carry out.
Like others, I believe that, at the least, the proposals would be much fairer and have much greater logic if they followed all the suggestions of those who advocate tapering, the point being to bring the taper down to zero. Then, to some extent, no matter what happened, there would be potential fairness and benefit, even though many of the disadvantages would still be left on board.
I do not see what the Government's objective is. They are introducing a system that, for everyone involved, is infinitely more complex and random than that which they


seek to replace. It leaves investors, whether they are companies or individuals, with greater uncertainty and greater penalties against managing their investments. It is an unnecessary gift to the providers and forces individuals to use collective investment schemes. Why should the Government want to achieve those objectives?

Mr. Nick St. Aubyn: Like many Conservative Members, I find these new Government proposals confusing. Although I should perhaps declare an interest, since clause 119 could affect certain assets that I own, I am not at all clear whether it will be to my benefit or to my detriment. I am sure that many investors will be in the same situation. Sadly, however, some groups of investors will almost certainly be worse off. That is the main reason why I support the amendment.
Earlier in the debate, hon. Members were asked whether capital gains tax was itself wrong. The question is very easy to answer: yes, of course capital gains tax is wrong. It is wrong in principle because it is a form of double taxation. It is taxation either of inflationary, paper gains or of real gains—which represent an expectation that an asset that has gained in value will in future yield a higher income. As long as there is corporation tax and income tax, that higher income will be taxed regardless of a capital gains tax. Capital gains tax seeks simply to tax that income even before it has arrived. It is therefore also a speculative tax.
Although some form of capital gains tax has proved to be necessary in modern economies, in most economies it is levied at a lower rate than in the United Kingdom, and with rules which are easier to understand and more flexible, and which do not deter or pervert normal business decisions. In the United Kingdom, capital gains tax distorts normal business decisions, and that distortion will increase greatly as a result of the Government's proposals in clause 119.
Avoiding such distortion is the justification for exempting gilt investments from capital gains tax, although the principle applies equally to almost all classes of investment.
An array of anomalies is generated by introducing a taxation system that is fundamentally flawed—as the clause certainly is. As Conservative Members have said, it would be anomalous for an investor's losses to be set against total gains made in the same year by disposing of another asset, and for the tapering provisions to apply only if there is a residual gain. The provision will greatly limit investors' ability to offset losses against gains, and perhaps reflects the fact that the Government have not thought their policies through. Amendment No. 16 would mitigate the problems, and would rightly—at least in the long term—reduce capital gains to a zero rate.
In the absence of the amendments, the Government's pooling proposals would provide a real incentive to those who accumulate a holding in a specific asset class or company's shares and who have decided to dispose of some of that holding to dispose of it all; in that way, investors would receive the full benefit of tapering relief and would not suffer from the discrepancies of the last-in, first-out rules that the Government propose. Far from encouraging people to hold assets for the long term, the Government are encouraging people to make a quick sale when they decide to sell any of their investment.
We have already heard about the redefinition of business assets—a severe restriction and tightening of the previous definition. The definition will also become more complicated. Far from being members of a Government who are in favour of helping small business, Ministers are yet again hitting small businesses, by introducing new rules that remove exemptions that many small business people might have expected to continue enjoying.
Phasing out retirement relief is another aspect of the Government's proposals. Another perverse consequence of those proposals is that someone who qualifies for any form of retirement relief would be well advised to dispose of their entire business this year rather than holding on to it for another few years. In any of the subsequent 10 years—arguably, even at the end of those 10 years—such business people will be penalised unless our amendments are accepted.
The Government's proposals contain other anomalies. Anyone looking for what might be regarded as a safe asset who invests in a high income-producing asset that manages only to track inflation in the long term will know that, at the end 10 years, they will suffer tax at a rate of between 10 per cent. and 24 per cent. on any paper gain made on that investment. Such taxation is confiscatory, recalling the old Labour system and the very worst aspects of capital gains tax, and poses the question why the Government have not followed the example of their Conservative predecessors.
When the previous Government introduced indexation relief, we realised that some individuals with long-term holdings and assets might be adversely affected by the new rules. We therefore made it possible for them, if they preferred to do so, to use the old tapering rules, which were introduced in 1965, in calculating their capital gain.
Since the Government have made the system so complicated, why have they not at least given investors the option, when disposing of an asset, of continuing with annually upgraded indexation relief or of switching to the tapering relief system? If they did so—thereby mildly increasing the complication of an already very complicated system—investors would know that the 1998 tapering provisions would be beneficial, and would not penalise their safe and prudent investment policies.
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I think particularly of those in the farming community. The Government have in so many ways attacked those living in rural areas. Only yesterday, in their vicious increase in petrol duty, we saw another example of that attack. Without the benefit of the amendments, anyone who owns a farm in a rural area will find that the new tapering rules do severe damage to the long-term value of their holding.
When those who have farmed all their life dispose of a farm holding to retire, they will be faced—thanks to the Labour Government—with a tax bill, even though in the past 15 years, much farm land has under-performed the inflation rate. Under the old rules, they would not have faced any capital taxation on retirement.
Formerly, it was said in the farming community that farmers hope to live under a Labour Government but die under a Conservative one. Now they cannot even afford to retire under a Labour Government. I think that the farming vote is already waking up to the dangers of the Government, and will be even more alive to the effects of the Government's actions.
Another anomaly of the Government's proposals that has already been mentioned is that, whereas someone investing in and holding a unit trust for 10 years will enjoy the benefits of tapering relief, someone owning individual shares will not enjoy that benefit to the same extent. There is therefore a missing component in the Government's proposals. Although our amendments go some way towards supplying that missing component, we will not create a fairer capital gains system—if we are to have one at all—until we establish a general principle of roll-over relief for those investing in a share portfolio.
If Ministers are not prepared to accept amendment No. 16, they should seriously consider providing general rollover relief for those with share portfolios, so that those who, as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, enjoy managing their own share investments will enjoy the same tax regime as those investing in unit trusts. A greater element of fairness in the matter is demanded, but clause 119 does not provide it.

Mr. Gibb: I support amendments Nos. 16 and 17.
The press release heralding the capital gains tax reforms announced in the Budget was quite ironic—indeed, it would have been funny had it not been dealing with such a serious matter. It stated that the reforms
will stimulate interim entrepreneurial activity by rewarding long-term investment in business.
What many people missed in March when listening to the Chancellor make his Budget statement was the fact that coupled with the introduction of tapering relief was an announcement that retirement relief would be phased out over the following five years and abolished entirely.
People retiring today with a £250,000 gain would be exempt from tax, but when the new system is fully operational they will pay tax at 10 per cent., so they will have a bill for £25,000. How does that help entrepreneurial activity? The charge will rise to 22 per cent. in 2004, when retirement relief will be fully phased out, but when the tapering will not be fully effective, having had only five years to elapse.
The provisions seem to penalise the smaller investor, who will have put all his resources into his business and probably will not have any spare cash for a pension fund: it will be ploughed into building up the business, which he will then be expected to sell on retirement to provide the capital sum out of which he can purchase annuities to secure an income in retirement.

Mr. John Hayes: With typical generosity, my hon. Friend sounded a note of surprise when he said that the provisions "seem" to do that. Is there not a consistent theme in the Government's two Budgets of attacking savings, and the small investor in particular?

Mr. Gibb: I am grateful for that wise intervention. It is true: the first Budget abolished the repayment of tax credits, thereby confiscating the capital value of pensions, and the second contains this confiscatory measure, which will attack the capital that people are relying on for their retirement.
The Government are doing that not only from vindictiveness but because they regard those capital sums as easy pickings to be spent when the spending moratorium ends and they can try to win the next general election with a large spate of spending.
The measures will amount to retrospective taxation on the entrepreneur who sells his business on retirement. His pension fund, which he hoped to be able to rely on and had assumed would be tax free, will be taxed and reduce in value. It is ironic that the proposals penalise the smaller entrepreneur much more than the large entrepreneur.

Mr. Cranston: Is not the logic of the hon. Gentleman's position that such a person, if he retires at 65, has become an entrepreneur only at 55, because the whole thrust of the proposal is to give the full relief after 10 years?

Mr. Gibb: I do not follow what the hon. Gentleman is saying. The provisions announced by the Government do not give anyone full relief. The tax reduces no further than 10 per cent. The amendment is designed to redress the errors created by the Government and give people full relief after 10 years, so that the damage caused by abolishing retirement relief and introducing the tapers can be undone to some extent.

Mr. St. Aubyn: Has my hon. Friend noticed that, with the 10 per cent. factor, someone would have to realise a gain of more than £1 million to be even slightly better off as a result of the change? It is another Bernie.

Mr. Gibb: Indeed. My hon. Friend has anticipated, in his usual witty way, the point that I was about to make. Someone with a gain of £250,000 will be much worse off under the new regime, but the person who makes £500,000 will be better off in 10 years' time, although he will be penalised in the transition period. Those with a gain of £1.3 million will be better off throughout.
The measure will not boost or help entrepreneurship or long-term investment, as suggested in the press release. As always, it will do enormous damage to the small entrepreneur trying to make a living in a difficult and competitive world.
The press release made another ironic statement. It said:
The changes will lead to simplification of the CGT system.
If that is the case, why, as my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) said, did the Financial Times report on 22 April that the Bill makes capital gains tax so complicated that software houses cannot write the software to calculate the tax liability. Software houses have access to all the expertise and can pay all the fees to accountancy and law firms to get the right advice, so if even they cannot calculate the liabilities, what hope is there for the ordinary taxpayer trying to fill in his self-assessment tax return?
In evidence to the Treasury Committee, Andrew Dilnot said:
My specific concern is capital gains tax where I am almost lost for words.
He went on to say:
The capital gains tax reform does not, it seems to me, make the system more straightforward. It introduces a whole series of new barriers within the tax system, distortions.
How does that sit with the statement in the press release that the changes would lead to a simplification of the CGT system? The Select Committee, which is an all-party body dominated by Labour Members, reserved its most


scathing criticism for the measures on capital gains tax. Paragraph 43 of the conclusions of its report on the Budget says:
Our experts were critical of the changes made. Mr Troup could see little to justify why a gain made after ten years should be treated differently from two gains made over five years each, one after the other. As he put it, 'The incentives which the taper will create are very unclear'. He was concerned that the failure to deal with companies' capital gains at the same time 'leaves further distortions and anomalies now, with more to arise in the future'. Mr John Hills of the Centre for Analysis of Social Exclusion foresaw the growth 'a new tax avoidance industry,' with conversion of income into capital gains.
The Select Committee—in bold type—concluded:
We regret that the capital gains tax proposals were not included in the Pre-Budget Report; we recommend that the Treasury should give urgent attention to reducing the complexity of the new system of tapers.
How can the Government claim that the CGT reform is simple, when it applies to individuals, partnerships and trusts but not to companies, which will continue to use the old rules; when it has 14 different tapering percentages of gain to be applied across at least five rates of tax; and when it introduces the new concept of business or non-business assets, with all the complexities that such definitions bring?
As my hon. Friend the Member for Grantham and Stamford (Mr. Davies) said, why did the Government introduce a whole new set of definitions, taking up four pages of a schedule, when they could have used other definitions that have been in the tax system for many years?
How can a system be described as simple when it keeps the old system not only for disposals made before Budget day but for those made after that day but relating to assets held before April this year? Indexation allowance continues to be available for gains made up to April 1998, but from that date only the tapering rules apply. There are new rules on pooling. The system is so horribly complicated that no one subject to self-assessment should even consider preparing a capital gains tax calculation without taking professional advice. How can that be right? How can a tax system be run in that way? How can it be a simplification?
As my hon. Friend the Member for Guildford (Mr. St. Aubyn) said, the new regime penalises those who invest in safe and low-yielding assets, to the advantage of those who make rapid and large gains. Without indexation allowance, someone investing in safe assets that increase in value only slightly would have paid virtually no CGT under the current regime, but will now have to pay 10 per cent. or 24 per cent. on a gain resulting solely from inflation. By contrast, a rapidly appreciating asset is likely to result in a much lower tax than under the current regime.
The Government are coy about whether the reforms are tax-yielding or tax-revenue-neutral. The press release states that the reforms are expected to have a negligible cost in 1998–99; to cost £25 million in 1999–2000; and to yield £25 million to the Exchequer in 2000–01, but for later years
the Exchequer effects will depend to a considerable extent upon movements in future asset prices, any behavioural changes by investors and other factors.

'Twas ever thus. That caveat could be applied to all yield estimates arising from changes to taxation. These reforms are no different, except that most commentators believe that they will raise money for the Exchequer in the medium term. This complicated reform of the CGT system is yet another of the Government's stealth taxes.
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The consultation process, to which my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) referred, should involve not only the inviting suggestions for reform—I understand that the Government received 171—but a discussion of the proposals. The press release states:

"Various forms of taper were suggested to the Government to reduce the taxable gain over time, with many wanting it to operate over a short period and to reduce the gain to zero."

Mr. Loughton: Is my hon. Friend aware that the Government have published the results of the consultation and put them in the Library—which they promised, but have so far signally failed to do, with the consultation on PEPs and ISAs? Is it fair for Ministers constantly to refer to consultation responses without those responses being available to hon. Members?

Mr. Gibb: My hon. Friend makes a worthwhile point. I hope that the Financial Secretary will reply to it, because it would be useful to know what people are saying about the reform of the capital gains tax system. According to the press release, a number of representations suggested a tapering system that reduced the rate to zero, as the amendment proposes. It would be interesting to discover how many of them support the amendment.
The press release says that the representations
did not, however, consider the effect that such a taper"—
down to zero—
would have on the yield.
The reforms are clearly not about simplifying the tax system, because they will complicate it hugely. Nor are they about encouraging entrepreneurs and long-term investments; they are yet another tax and yet another method of increasing the yield for the Exchequer.
The final paragraph of the press release is even more revealing:
Some representative bodies found it hard to comment in detail and asked for further consultation as proposals developed. The Government agrees that more detailed consultation may be appropriate on certain issues, but felt that it was not needed for the structural changes that are proposed in this Budget to encourage enterprise and long-term investment by individuals.
Why is that? The contrary is proving to be the case. Why did the Government think that it was not necessary to subject such major changes to the capital gains tax system to consultation?
The reforms have not been warmly received and would have benefited enormously from further consultation. For example, there is huge confusion about the use of brought-forward losses. I hope that the Financial Secretary will help taxpayers by clearing it up. Clause 119 says that the taper will be applied to the net gains that are


chargeable after deduction of any losses in the same year or losses brought forward from prior years. The notes on clauses state:
It will not be necessary to use the losses brought forward or carried back to the extent that these would reduce the net untapered gains below the level of the annual exempt amount.
The Financial Times reported what it thought was the good news that the Bill would not implement the provisions that appeared to have been mentioned in the Budget press releases which would have forced investors to set off previous years' capital losses against gains, rather than letting them choose to carry them over into the next tax year. If it had been implemented, that proposal would have forced investors to use up carried-over losses rather than using their annual allowance, effectively boosting revenue for the Exchequer.
The euphoria of the Investors' Chronicle and the Financial Times was not correct. The Institute of Directors has said that the amendment of section 3 of the Taxation of Chargeable Gains Act 1992 by the Bill will mean that the taxpayer must use losses brought forward, even if the tapered gains would be covered by the annual exemption. Those with capital losses on other assets or capital losses brought forward will not be able to benefit from the value of their annual allowance, but will have to use up valuable capital losses instead.
The Country Landowners Association raised that issue in a letter to the Investors' Chronicle. Adrian Baird, the CLA's chief taxation adviser, points out that, where untapered gains exceed losses, the application of losses brought forward from earlier years has to be used against those gains before the annual exemption is applied against the tapered gains. As he says, "This is clearly unfair."
The Government should table amendments to put right drafting errors before the detail of schedule 21 is debated in Committee—then the rhetoric of the announcement would for once match the reality of the legislation. I hope that the Financial Secretary accepts that there has been an error in the drafting of the provisions dealing with the way in which brought-forward losses interact with the annual exemption.

Mr. Clifton-Brown: We are discussing relatively modest savers. Does my hon. Friend agree that Governments of all colours have accepted the principle that losses can be used to mitigate gains in a chosen year, although the Government are going against it?

Mr. Gibb: My hon. Friend makes a valid point. I believe that the Government did not intend to move away from that long-established principle, but there has been a drafting error, which the Government may put right this evening or in Standing Committee.
The amendment would do much to remove from the Government's proposals the anomalies, the unfairness, the complexities and the disincentives to entrepreneurs. I urge the Committee to accept it.

Dawn Primarolo: We have had a detailed debate. I want first to outline the Government's objectives; secondly, to respond to the amendment; and, thirdly, to respond to the detailed questions asked by Conservative Members, many of which are relevant regardless of whether the amendment is accepted.
First, I shall deal briefly with consultation, which several hon. Members mentioned. There was extensive consultation to invite views on possible changes to the CGT system. That was announced in the Revenue press release of 29 July 1997. The Government took the views into account in developing the reform package. Many hon. Members quoted from the summary of the consultation exercise that was published with the Budget papers. It was not practical to consult on the details, because of the risk that some investors would change behaviour to reduce their tax bills, and so erode the tax base and disrupt markets. That must be obvious to Conservative Members.
I realise that some hon. Members favour the taper and some do not, but the fact is that we could not, for example, have consulted on the head start in the reform. We could not have consulted on how far the indexation freeze would be retrospective, on retirement relief or on the bed-and-breakfast changes. Many Conservative Members made thoughtful contributions on the taper, and understand those points well. I understand that they must make those points, but they know full well that such problems arise.

Mr. Gibb: I cannot understand why the Minister feels that taxpayers will want to mitigate the consequences of the reforms if their purpose is to simplify the CGT system and encourage enterprise and long-term investment. That implies that the reforms are benign. She now admits that they are not benign, and that people will want to mitigate their effects. Why does she believe that taxpayers will not think that the changes are benign and would have sought to undo their effects if they had had prior notice through the consultation process?

Dawn Primarolo: As the hon. Gentleman knows full well, the Government sought to ensure that there were minimal opportunities to exploit by avoidance mechanisms the true intention of our reforms. That is what I wanted to deal with next, before responding to the amendment.
The Budget was designed to secure economic stability, encourage work, promote enterprise and create a fairer society. To those ends, the Government are committed to improving the performance of all UK business. Business needs a fair tax system that rewards long-term investment and entrepreneurship. Again, Conservative Members repeatedly highlighted the problems in the current system, while engaging in a wide-ranging debate. The CGT reforms are designed to promote enterprise, reward risk taking and encourage long-term investment in place of a culture of short-termism and expediency.
The introduction of the taper is central to the reforms. It reduces the percentage of chargeable gain on long-term assets that are held. That will encourage taxpayers to take the long-term view when they invest.

Mr. Quentin Davies: rose—

Mr. Hogg: rose—

Dawn Primarolo: I shall give way to the hon. Gentleman first.

Mr. Davies: rose—

Dawn Primarolo: indicated dissent.

Mr. Davies: Does the hon. Lady believe that short-term capital gains are less valuable to the economy than long-term capital gains, and if so, why?

The Chairman of Ways and Means (Sir Alan Haselhurst): Order. The hon. Lady will have to distinguish between her honourable and her right honourable Gentlemen.

Dawn Primarolo: I am grateful for that guidance, Sir Alan.
The aims of the Government's policy are clearly to encourage long-term investment and discourage short-termism. I now give way to the right hon. and learned Gentleman.

Mr. Hogg: The hon. Lady says that her intention is to encourage long-term investment. I think that she would accept that her proposals, given an increase in the rate of inflation, could mean that people pay capital gains tax on paper gains. How can that be said to encourage long-term investment?

Dawn Primarolo: The policies are designed to encourage long-termism. That is set within the Government's policy of stability and low inflation. That is the point of the reforms.
The introduction of the taper relief will make it possible progressively to withdraw the complicating features, to which Conservative Members have repeatedly referred, from the CGT system. Chief among those is the indexation allowance.

Mr. Gardiner: Did my hon. Friend see the report in the Financial Times on this point the day after the Budget? It mentioned that one of the effects of the change in the CGT regime would be to bring more into play the Greenbury committee's recommendation that there should be a minimum of three years—which quickly became a maximum of three years—before the options on boardroom shares and incentive schemes were exercised? One of the finest impacts of the Government's scheme will be to ensure that such options will be held long-term, and to create a real incentive for loyalty and commitment to companies.

Dawn Primarolo: That is exactly the direction in which we are moving, to put long-termism in place of the culture of short-termism and expediency.
The complexities that indexation introduces into the system are much complained of, and have been complained of this evening. The taper that will take over is intuitively simpler, and will progressively lead to a simpler system as indexation relief ceases to complicate CGT computations. The hon. Member for Cotswold (Mr. Clifton-Brown) mentioned completion of self-assessment returns. Anyone with a gain who has to calculate indexation currently would be well advised to have professional advice. His point applies to the present system.

Mr. Clifton-Brown: rose—

Mr. St. Aubyn: rose—

Dawn Primarolo: I shall give way first to the hon. Member for Guildford (Mr. St. Aubyn), and then to the hon. Member for Cotswold.

Mr. St. Aubyn: Does the Financial Secretary accept that simplifying a system may produce cases of rough

justice? If so, why have the Government removed from the taxpayer the option of the indexation system and whatever complications might be involved in calculating the indexation gain, and simply insisted that everyone has to go over the tapering relief system?

Dawn Primarolo: With respect, what the hon. Gentleman suggests is far too complicated. The Government are striking a balance on the question of fairness in a period of transition from one regime to another—from indexation to the taper regime. That is precisely why the Government have established these mechanisms.

Mr. Clifton-Brown: The Financial Secretary says that introducing the new deemed holding period with the taper makes the computations simpler for the taxpayer, but those taxpayers who have held assets from before 17 March will have to deal with both systems. Far from being simpler, the new system is twice as complicated.

Dawn Primarolo: I have tried to explain to the hon. Members for Guildford and for Cotswold that, in a transitional period, the issues of simplicity and fairness must be balanced, which is what the Government have sought to do. As I said, the taper system will be a simpler system after the period of transition has passed.
The introduction of a more generous taper also removes the need for a separate exemption of a slice of business gains, which retirement relief currently provides for the over-50s. We have taken the opportunity to remove from the system a complex relief that has given rise to high compliance costs and much litigation. The relief will be phased out over a five-year period as the benefit of the taper builds up.
The withdrawal of that relief is also part of a move toward a fairer tax system, in which everyone who realises a substantial gain will pay some tax at the reduced level under the taper. That is crucial to the Government's reforms.

Mr. Quentin Davies: The Financial Secretary may have regarded that last passage as an answer to my specific question about the mismatch between the withdrawal of retirement relief and the introduction of a taper, but it was not a satisfactory answer.
Why did the Government decide to produce additional transitional problems and the anomaly to which I drew attention, whereby, in the interim, business assets will suffer a higher rate—more than 20 per cent.—of capital gains tax? Why will the Government not phase out business retirement relief over the same 10 years over which the taper is being phased in? That was a choice open to the Government, so why did they not take it?

Dawn Primarolo: The answer to the hon. Gentleman's question, which that passage was not, is that it is the Government's opinion that the proposed period is a fair period for the phasing out of the relief. The encouragement to continue to invest and receive the long-term gain is clearly there.
We are also making several changes that will lead to a fairer system: the rules to counter the wholly tax-driven activity of bed-and-breakfasting shares; the taxing of all gains of trusts at the uniform rate of 34 per cent.; and the


tightening of the rules on temporary residence, so that people cannot avoid a UK charge simply by going abroad for a limited period.

Mr. Hogg: Will the Financial Secretary give way?

Dawn Primarolo: If the right hon. and learned Gentleman first lets me make a little progress, I shall give way to him. There are many questions I have to answer from hon. Members.
That is not all. We are introducing changes to stimulate greater provision of equity capital for smaller, higher-risk trading companies; and changes to target the available finance in the most effective way. That will be achieved under a new enterprise investment scheme, which combines the existing EIS and CGT reinvestment relief so as to provide a unified, better-focused scheme, while preserving the best parts of the previous system. We shall have an opportunity in Standing Committee to debate the detail of those measures, together with the taper, which is included in schedules 20 and 21.
The amendments proposed by the right hon. Member for Hitchin and Harpenden (Mr. Lilley) deal with the basic structure of the taper proposed in clause 119.

Mr. Hogg: Would this be a good moment to intervene?

Dawn Primarolo: I fear it is.

Mr. Hogg: I should like to take the Financial Secretary back to the subject of bed-and-breakfasting. She has supported the retention of the capital gains tax exemption—as do we—and she would also argue the case for long-termism; but to deprive small investors of the opportunity to take advantage of the capital gains tax exemption in any one year so as to rebase capital values is to damage the position of small investors, so that they are effectively deprived of the capital gain exemption.

Dawn Primarolo: As the right hon. and learned Gentleman will know, bed-and-breakfasting is a wholly tax-driven activity, and the Government have made clear their view. My right hon. Friend the Chancellor sent out a clear message that the practice of bed-and-breakfasting is objectionable, and the Government will watch carefully for any attempt to get around the provisions.

Mr. St. Aubyn: Will the Financial Secretary explain why it is objectionable for a small investor to sell shares in, say, Glaxo and buy them again the next day, but it is not socially objectionable for that small investor to sell shares in Glaxo and, on the same day, to buy shares in, say, SmithKline Beecham?

Dawn Primarolo: The issue is one of investment versus a wholly tax-driven activity. I should have thought that Conservative Members would understand that.
Let me now turn to the amendments and the Government's response. Taper reliefs reduce the amount of gain chargeable on the disposal of an asset. The amount of the reduction depends on the use to which the asset has been put—that is, whether or not it is a business asset—and the length of time it has been held. If the asset has not been a business asset, the taper reduces the gain by 5 per cent. for each year it has been held after three years;

the maximum reduction is reached when assets have been held for 10 years or more, when 60 per cent. of the gain remains chargeable.
If the asset is a business asset, the taper reduces the amount of the gain by 7.5 per cent. for each year after the first year; the maximum reduction is reached when the asset has been held for 10 years or more, when only 25 per cent. of the gain remains chargeable.
Business assets are those that have been used in a trade and holdings in a trading company in which the investor has a substantial interest. The taper runs for periods after 5 April 1998, which ties in with the freezing of indexation relief for assets held at April 1998. Indexation will be available to that month, and the taper relief from then on. Assets held on Budget day will qualify for a one-year head start down the taper.

Mr. Bermingham: I am sorry to interrupt my hon. Friend, but I should like her to answer one question. Where the owner of a small business uses personal assets—for example, a cottage or house that is not his residence, or shares in some other holding—will those assets qualify for the exemption under the taper if they have been used to support the development of the business?

Dawn Primarolo: I think my hon. Friend was not present when I said that the intention behind the reforms was to promote enterprise, reward risk taking and encourage long-termism. He asked a specific question on a detailed point, on which I would prefer to come back to him later.

Mr. Gibb: Will the hon. Lady give way?

Dawn Primarolo: No.

Hon. Members: Shame.

Dawn Primarolo: Sir Alan, I have been very generous, and I would—

The Chairman: Order. I am sorry to interrupt the hon. Lady. The Committee should know that it is entirely up to the Minister whether she gives way, and that background noise is not acceptable.

Mr. Hogg: On a point of order, Sir Alan. Would you just remind me—although I think it is right—that, as the House is in Committee, hon. Members may make further speeches after the Minister has completed hers?

The Chairman: The right hon. and learned Gentleman is perfectly correct to say that hon. Members are not confined to one speech in Committee, but it is still entirely up to the person who holds the Floor how they conduct their speech, and how they maintain the flow of that speech.

Dawn Primarolo: Thank you, Sir Alan. I wanted to make some progress in my remarks, especially to answer the detailed questions that have been asked. When I have made progress, I should be happy to give way again. I believe that I have already done so generously.


Obviously, the purpose of amendments Nos. 16 and 17 is to ensure that people who have held an asset for 10 years or more pay no tax on their gains. We do not think that it is necessary to reduce the tax to zero to meet the objectives of the capital gains tax reform, nor do we think it a right or fair thing to do. The purpose of the taper is to encourage people to take a long-term view when they invest, and to reward those who do so, especially the entrepreneur. We believe that the taper, as drafted, will achieve that.
We believe that charging 25 per cent. of the gains on assets held for 10 years—producing an equivalent tax rate for the higher rate taxpayer of only 10 per cent.—will provide a very real incentive in future for entrepreneurs to set up and expand their businesses. Similarly, charging 60 per cent. of the gains of non-business assets—producing an equivalent tax rate of less than 14 per cent. for the basic rate taxpayer, and only 24 per cent. for the higher rate taxpayer—will provide a real incentive for the ordinary investor to invest for the long term.
Obviously, it is a matter of judgment how generous the reduction should be to produce the desired incentive, and that question provoked much discussion in the debate. However, we believe that the taper in the form set out in clause 119 is sufficient to meet our objectives. To go further and reduce the tax to zero would be not only unnecessary and costly, but unfair to the general body of taxpayers, who do not have capital gains. In our view, those with substantial gains should pay some tax on those gains, which is why we have set the taper in the way we have.
We estimate that, if the taper reduced the charge to zero in the way suggested by amendments Nos. 16 and 17, the annual yield from CGT would be reduced by more than half when the new regime was fully effective. Reducing the tax to zero would also be likely to add to the tax unwelcome complexities—the very thing that Conservative Members wish to avoid.
The taper has been structured in such a way as to make the tax work more simply than it does with indexation. A raft of new rules would probably be needed to counter the additional incentive that a zero-rate tax would provide for converting short-term gains into long-term gains, and income into gains. That could also have much wider implications for the tax system and the yields.

Mr. Quentin Davies: Will the Financial Secretary give way?

Dawn Primarolo: I have said that I am not giving way at the moment. Conservative Members have asked many questions, and I should make progress in answering some of them before more are asked. If Conservative Members were a little more patient in the debate, we could make progress.
In his speech to the British Dyslexia Association just before the Budget, the shadow Chancellor spoke in favour of a taper reducing the CGT charge to zero after the asset had been held for 10 years, but he qualified his remarks as follows:
Inevitably"—

I hope that I am not misquoting—
I put this forward tentatively because only with the information available within the Revenue could a scheme be devised which minimised traditional complexities, was not vulnerable to avoidance through use of derivatives and did not reduce overall tax revenues.
Well, we have the advantage of access to the Revenue, because of the general election in May 1997. I understand that the results of a poll published today show that our majority would be even larger if a general election were held now, such is the public's satisfaction with the Government's performance.
Now that he has the information with which I have provided him, the right hon. Member for Hitchin and Harpenden should realise why his amendments are unacceptable. We believe that the proposed taper achieves a balance in all the matters that he identified. It will encourage investment for the long term, especially investment in business assets, and reward those who take more than a short-term view.
I now consider some of the specific points that have been made. Various hon. Members said that software houses would be unable to introduce new systems in time to account for the reform package. The Revenue are in discussions with software houses to resolve the problems that have been identified. There is no evidence that it will be difficult to accommodate the taper—the software houses are talented, and already design extremely complex programmes—or to freeze indexation at the April 1998 point. In any event, the 1997–98 tax returns have only just been issued, so another year is available.
The right hon. Member for Hitchin and Harpenden asked why we were phasing the changes over five years. I believe that I have touched on this point, but, to develop it, phasing the current system out over five years will allow those affected to plan and adapt to the revised circumstances. Also, with the one-year addition for assets held at Budget day, the taper will already provide a substantial reduction in a gain chargeable if the sale takes place around the year 2003—the time when retirement relief will be phased out. There is a need to move to the new regime within a reasonable period; in the Government's opinion, five years is a reasonable period to choose to balance equity with complexity.
The right hon. Member for Hitchin and Harpenden asked for details of the Exchequer effect of the taper. Other hon. Members who knew the answer to that question then tried to say that my answer was not an answer after all, but I repeat it. To evaluate the Exchequer effect of the taper separately from the other changes would be a meaningless exercise.
Overall, the CGT reforms are broadly revenue-neutral in the medium term. The cost to the Exchequer will be negligible in 1998–99, and £25 million in 1999–2000. In 2000–01, there will be a yield of £25 million. For later years, the Exchequer effect will, of course, depend to a considerable extent on movements in future asset prices, on behavioural changes by investors, and on other factors.
I am glad that the right hon. Member for Hitchin and Harpenden acknowledged that the current rate of CGT was unreasonable, and that reforms should be undertaken. He then posed the question—

Mr. St. Aubyn: Will the Financial Secretary give way?

Dawn Primarolo: I will not give way.


The right hon. Member for Hitchin and Harpenden drew attention to the higher effective rate of tax for assets held for a short time—the taper not providing a reduction in that regard. He said, correctly, that the taper did not bring about a reduction below the current effective rates until the longer holding periods cut in. That is indeed what happens; it is the objective of the reforms. We want to shift the CGT burden away from long-term investors and towards short-term investors, to encourage a longer-term view.
The penultimate point concerned small businesses. The small business asset taper can substantially reduce the tax payable by all businesses, but we believe it right that everyone should pay some tax on large gains above the annual exempt amount; so a continuing exemption has no place in such a scheme, as I have repeatedly made clear.
Finally, many Conservative Members asked why we were phasing out retirement relief. The Government's objective—I cannot remember how often I have said this—is to encourage long-term investment, especially of the entrepreneurial type. It is therefore right to target reliefs on long-term business investment, which is what the generous business asset taper does.
The hon. Member for Grantham and Stamford (Mr. Davies), in his statutory 20-minute contribution, asked a number of questions, but included a disclaimer about what the Institute of Chartered Taxation might say about his representations. He asked what work had been done on assessing compliance costs.
The Revenue published a regulatory appraisal on 5 April demonstrating the long-term compliance benefits of the reform, and appraising the short-term increase in compliance costs. That short-term increase is a result of the transition from the current to the new system in a way that will be acceptable to the broad majority of CGT payers. As indexation and retirement relief work their way out of the system, the compliance benefits will become increasingly evident.
The hon. Gentleman also asked about the four-page definition of business assets, as opposed to the current definition used for gift reliefs under section 165, I think he said. No doubt he will explore these questions further in Standing Committee. That definition is not one that we wanted to use for the reform. The purpose of the taper definition is, as I keep saying, to encourage entrepreneurial activity. We have therefore used a definition appropriate to that purpose. It is quite simple in most practical circumstances.
The hon. Gentleman asked about rebasing asset values at 1998 levels. That would produce huge windfall gains for some people. Rebasing was therefore rejected. It would also create the expectation that we might rebase regularly, so people would hold off transactions in that expectation.

Mr. Quentin Davies: How in the name of heaven could such a move produce expectations that the Government would rebase again? This would clearly be the last rebasing, because indexation would be abolished. Why not take the opportunity to remove the complexities of the co-existence of indexation and tapering for many years to come? Why not reduce those complexities and administrative costs by getting rid of indexation? if that

is done, there can be, by definition, no expectation of rebasing again. The hon. Lady's answer does not make sense.

Dawn Primarolo: I disagree. The Government have to decide what is fair. In determining that, we took into account the substantial windfall gains for some individuals. The Government's proposals are the fairest way of effecting the transition from one system to another.
The hon. Member for East Worthing and Shoreham (Mr. Loughton) said that he was in favour of the amendment, but then spoke against even the principle of the tax, let alone the taper. If all that he said was true, why, for 18 years, did the Conservative Government leave in place a system that he believes penalises entrepreneurial activity?
The hon. Gentleman also asked why only holding periods after 5 April 1998 should be counted for taper purposes. The point of the taper is to influence future behaviour. That is achieved by reducing the gain for holding periods after 5 April. Backdating the taper, which the hon. Gentleman also recommended, would confer windfall gains. In the interests of equity and simplicity, that would simply not do.
6.45 pm
The hon. Member for Arundel and South Downs (Mr. Flight) asked about first in, first out. Although that would mean more taper relief for earlier sales and less for later ones, it would also be more likely to produce larger gains for earlier sales and smaller gains for later ones. It is a case of swings and roundabouts.
The hon. Member for Guildford asked why we do not taper losses in the same way as gains. Tapering losses before offsetting them against tapered gains would introduce a distorting incentive to realise short-term losses and then set them against long-term gains.
I have sought to show why the amendments would not achieve the objectives set out by the right hon. Member for Hitchin and Harpenden, and I have answered the questions asked about details of the CGT reform. I have explained the Government's objectives, which are to balance complexity and equity during the transition from one tax to another. I ask the Committee to reject the amendment, and support the Government.

Mr. Lilley: This has been a very good debate, with extremely high-calibre speeches from everyone—not excluding the Minister, who was her characteristically charming and punchy self. She had to respond to an array of talent among my hon. Friends, all of whose speeches merit re-reading—and all of whom supported the amendment.
The other distinguishing characteristic of the debate has been the fact that no Labour or Liberal Member has risen to my challenge to defend the perverse consequences of this measure. I asked them whether they felt that they had been elected to introduce legislation that increased the tax on small business people and reduced it on the rich. I asked whether they supported measures designed to ensure that those who made modest gains paid more tax than those who made large gains. None of them rose to support that aspect of the Bill. We look forward with confidence, therefore, to their joining us in the Lobbies to support the amendment, which would largely eliminate the perverse consequences of the legislation.


The issue of consultation, and the inadequate way in which it was carried out, has been raised. The Financial Secretary could not answer the question from my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who said that, if the reforms that the Government wanted to announce and consult about would make life easier for people by reducing the burden of tax and by reducing the burden of compliance with that tax by simplifying it, why should anyone want to pre-empt the introduction of that regime and escape from it? She could not answer, because the question does not permit of an answer that would justify the Government's lack of consultation.
The Government could have presented their proposals and allowed people to comment on them without provoking great pre-emptive action by taxpayers. The legislation would have been all the better if they had proceeded in that way, rather than asking people to write in with abstract essays giving their own ideas about capital gains tax, which would be largely ignored.
The hon. Lady did not respond adequately to our argument that this was in essence a wealth tax. The abolition of indexation and the retention of a positive rate of CGT even after 10 years mean that anyone who has gains that purely reflect the decline in the value of money will henceforward have to pay tax on that, and will in effect be paying a wealth tax. Previous Labour Governments tried to introduce such a tax, and this Government will do so.
The hon. Lady said that a zero rate would be unfair to those who had no capital gains. However, those who have only inflationary gains have no real capital gain. Nothing is more unfair than taxing people on an inflationary gain. The only way to avoid that is by going down to a zero rate.
On simplification, the hon. Lady reminded the Committee that my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) raised the fact that people already faced the problem of dealing with self-assessment. They will now have the added problem of dealing with tapering as well as indexation. The Financial Secretary said that taxpayers should be taking professional advice to deal with indexation, so it will not be difficult for them to take additional professional advice to deal with tapering.
My right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg), who is talented and numerate, could probably do those calculations in his head, with his eyes closed. He does not need professional advice, but he admits that he would need such advice to deal with tapering. Why should we create a system that will line the pockets of accountants by making indexation and tapering run side by side for anyone who has assets acquired before 17 March?
As I understand it—perhaps the Financial Secretary will intervene if I am wrong—indexation will not cease in 10 years. It will run alongside tapering for ever in respect of assets acquired before 17 March 1998, so knowledge of the two systems will be necessary.

Mr. Gardiner: The right hon. Gentleman considers it complicated that the two systems should run alongside each other in perpetuity, but his hon. Friend the Member

for Guildford (Mr. St. Aubyn) suggested that there should be an option to choose between the two systems. Would that not create even more of a headache?

Mr. Lilley: It would not create more of a headache for those who did not want to take the option. If people wanted to take it up, fair enough. Such systems have existed in the past, but we would prefer not to need the option, by phasing out indexation more satisfactorily and backdating tapering to compensate for it, if that can be done effectively.
The hon. Lady was blasé about the problems raised by the software houses with regard to coping with the complexities of the tax. The software houses do not lightly say that the problems cannot be dealt with by existing software packages, because those do not contain the necessary information and because much of the information about how the tax will operate is not being made available to the general public. I hope that she will look carefully at the problems and do something about them.
Retirement relief is one of the most important issues. The Financial Secretary failed to answer the question about the perverse effect. Suppose someone makes a profit of less than £500,000—say, £350,000—perhaps by selling a business which he has run, effectively, to provide him with a pension. We know that £350,000 will buy a pension much the same as the hon. Member for Bolsover (Mr. Skinner) will get when he retires. That person, however, will have to pay more tax. By contrast, someone who sells a business for £2 million will get an extra £350,000, more than he would get under the present tax regime, so he will be able to buy a second Bolsover pension for himself.
Is that sensible? Were Labour Members elected to bring about a change that will make the rich richer and the less rich less well off? To those that have shall be given, and from those that have not shall be taken away—that seems to be the motto of those on the Front Bench, which is calmly accepted by Back-Bench Labour Members.
After much effort, the hon. Lady said that she now believes that, in the long run, her tax changes will be fairly neutral. I do not know anyone outside the Committee in the expert community who believes that that is so. Almost all of them think that the changes will enhance Government revenues. They would be equally doubtful about her suggestion that moving to a zero rate would have an impact on the yield as substantial as she suggests. I would welcome the publication by the Government of the way in which they have made their calculations in this respect.
Most surprising of the Financial Secretary's replies to the questions raised was her statement that the perverse interim consequences of the transitional arrangements were deliberate. A person who in three or four years sells an asset that has risen at about 5 per cent. in money terms, assuming that inflation stays at its present level, will pay a 60 per cent. rate of tax on his real gain.
The hon. Lady says that that pattern of rates on gains made in the interim is intentional, and that it is designed to encourage people to hold on to their assets even longer. Why does she not make the rate 100 per cent., and make people pay massive rates unless they keep their assets for a very long time? It is extraordinary to increase the


effective rate of tax on real gains where those gains are modest. It is way above the present 40 per cent. rate. I am surprised about that.
On the 30-day rule, the Financial Secretary had no answer to the pertinent question why it was good for someone to be able to sell Glaxo and the next day to buy Beechams, but wrong for that person to be able to sell Glaxo and buy Glaxo back the next day, and make use of his capital gains tax allowance. Until we get an answer to that question, we will be puzzled why this strange dog's dinner—or dog's breakfast—of a measure had been introduced.
We will urge the Committee to vote in favour of the amendments, confident that the silence of Labour Members signifies consent on the perverse consequences of the Government's proposals, and that we will have a large measure of support from Labour Members.

Mr. Clifton-Brown: If, as the Government believe and the Financial Secretary made clear, these complex changes are revenue-neutral in the medium term, what on earth is the point of introducing them, when the compliance cost will be hugely increased?

Mr. Lilley: That is a very good question. A system that does not achieve the simplification that might have been possible if indexation had been replaced by indexation leading to a zero rate is probably not worth having. If the measure does not raise extra revenue, it is hard to justify. However, one suspects that it will—like almost every other tax measure that the Government have introduced. It is another tax-raising measure, from a tax-raising socialist Government. We urge the Committee to support us in this amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 149, Noes 251.

Division No. 261]
[6.59 pm


AYES


Ainsworth, Peter (E Surrey)
Chope, Christopher


Allan, Richard
Clappison, James


Amess, David
Clark, Rt Hon Alan (Kensington)


Ancram, Rt Hon Michael
Clark, Dr Michael (Rayleigh)


Arbuthnot, James
Clifton—Brown, Geoffrey


Ashdown, Rt Hon Paddy
Collins, Tim


Atkinson, David (Bour'mth E)
Colvin, Michael


Atkinson, Peter (Hexham)
Cormack, Sir Patrick


Baker, Norman
Cotter, Brian


Ballard, Mrs Jackie
Cran, James


Beith, Rt Hon A J
Curry, Rt Hon David


Bell, Martin (Tatton)
Davey, Edward (Kingston)


Bercow, John
Davies, Quentin (Grantham)


Body, Sir Richard
Davis, Rt Hon David (Haltemprice)


Bottomley, Peter (Worthing W)
Day, Stephen


Bottomley, Rt Hon Mrs Virginia
Donaldson, Jeffrey


Brady, Graham
Dorrell, Rt Hon Stephen


Brake, Tom
Duncan, Alan


Brazier, Julian
Emery, Rt Hon Sir Peter


Breed, Colin
Evans, Nigel


Browning, Mrs. Angela
Faber, David


Bruce, Malcolm (Gordon)
Fabricant, Michael


Burns, Simon
Fallon, Michael


Cable, Dr Vincent
Flight, Howard


Campbell, Menzies (NE Fife)
Forth, Rt Hon Eric


Cash, William
Fowler, Rt Hon Sir Norman


Chapman, Sir Sydney
Fox, Dr Liam


(Chipping Barnet)
Fraser, Christopher


Chidgey, David
Garnier, Edward





Gibb, Nick
Paterson, Owen


Gill, Christopher
Pickles, Eric


Gillan, Mrs Cheryl
Prior, David


Gorman, Mrs Teresa
Randall, John


Green, Damian
Redwood, Rt Hon John


Greenway, John
Robathan, Andrew


Grieve, Dominic
Robertson, Laurence (Tewk'b'ry)


Hamilton, Rt Hon Sir Archie
Roe, Mrs Marion (Broxbourne)


Hammond, Philip
Ruffley, David


Hancock, Mike
Russell, Bob (Colchester)


Harvey, Nick
St Aubyn, Nick


Hawkins, Nick
Sanders, Adrian


Heald, Oliver
Shepherd, Richard


Heath, David (Somerton & Frome)
Simpson, Keith (Mid-Norfolk)


Heathcoat-Amory, Rt Hon David
Smith, Sir Robert (W Ab'd'ns)


Hogg, Rt Hon Douglas
Smyth, Rev Martin (Belfast S)


Hughes, Simon (Southwark N)
Spelman, Mrs Caroline


Hunter, Andrew
Spicer, Sir Michael


Jackson, Robert (Wantage)
Stanley, Rt Hon Sir John


Jenkin, Bernard
Steen, Anthony


Johnson Smith,
Stunell, Andrew


Rt Hon Sir Geoffrey
Swayne, Desmond


Kennedy, Charles (Ross Skye)
Syms, Robert


Key, Robert
Tapsell, Sir Peter


Kirkbride, Miss Julie
Taylor, John M (Solihull)


Kirkwood, Archy
Taylor, Sir Teddy


Laing, Mrs Eleanor
Tonge, Dr Jenny


Lait, Mrs Jacqui
Townend, John


Letwin, Oliver
Tyler, Paul


Lidington, David
Tyrie, Andrew


Lilley, Rt Hon Peter
Wallace, James


Livsey, Richard
Walter, Robert


Lloyd, Rt Hon Sir Peter (Fareham)
Wardle, Charles


Loughton, Tim
Waterson, Nigel


Luff, Peter
Webb, Steve


Lyell, Rt Hon Sir Nicholas
Whitney, Sir Raymond


MacGregor, Rt Hon John
Widdecombe, Rt Hon Miss Ann


MacKay, Andrew
Willetts, David


Maclean, Rt Hon David
Willis, Phil


McLoughlin, Patrick
Wilshire, David


Maples, John
Winterton, Mrs Ann (Congleton)


May, Mrs Theresa
Winterton, Nicholas (Macclesfield)


Michie, Mrs Ray (Argyll & Bute)
Woodward, Shaun


Moore, Michael
Yeo, Tim


Moss, Malcolm
Young, Rt Hon Sir George


Nicholls, Patrick



Norman, Archie
Tellers for the Ayes:


Page, Richard
Mr. John Whittingdale and


Paice, James
Sir David Madel


NOES


Abbott, Ms Diane
Bradshaw, Ben


Adams, Mrs Irene (Paisley N)
Brinton, Mrs Helen


Ainger, Nick
Brown, Rt Hon Nick (Newcastle E)


Ainsworth, Robert (Cov'try NE)
Browne, Desmond


Alexander, Douglas
Burden, Richard


Allen, Graham
Burgon, Colin


Anderson, Janet (Rossendale)
Byers, Stephen


Armstrong, Ms Hilary
Caborn, Richard


Ashton, Joe
Campbell, Alan (Tynemouth)


Atherton, Ms Candy
Campbell, Ronnie (Blyth V)


Atkins, Charlotte
Campbelk—Savours, Dale


Barnes, Harry
Canavan, Dennis


Battle, John
Cann, Jamie


Bayley, Hugh
Casale, Roger


Begg, Miss Anne
Caton, Martin


Bell, Stuart (Middlesbrough)
Chapman, Ben (Wirral S)


Benn, Rt Hon Tony
Chaytor, David


Bennett, Andrew F
Chisholm, Malcolm


Bermingham, Gerald
Clark, Dr Lynda


Best, Harold
(Edinburgh Pentlands)


Betts, Clive
Clarke, Charles (Norwich S)


Blizzard, Bob
Clarke, Eric (Midlothian)


Borrow, David
Clarke, Tony (Northampton S)


Bradley, Keith (Withington)
Clelland, David


Bradley, Peter (The Wrekin)
Clwyd, Ann






Coaker, Vernon
Jones, Ms Jenny


Coffey, Ms Ann
(Wolverh'ton SW)


Coleman, Iain
Jones, Martyn (Clwyd S)


Cook, Frank (Stockton N)
Kaufman, Rt Hon Gerald


Cooper, Yvette
Keeble, Ms Sally


Cousins, Jim
Kennedy, Jane (Wavertree)


Cox, Tom
Kidney, David


Cranston, Ross
Kilfoyle, Peter


Cryer, Mrs Ann (Keighley)
Kingham, Ms Tess


Cummings, John
Kumar, Dr Ashok


Cunliffe, Lawrence
Lawrence, Ms Jackie


Cunningham, Jim (Cov'try S)
Lepper, David


Dalyell, Tam
Leslie, Christopher


Darling, Rt Hon Alistair
Levitt, Tom


Davidson, Ian
Lewis, Ivan (Bury S)


Davies, Rt Hon Denzil (Llanelli)
Liddell, Mrs Helen


Davies, Geraint (Croydon C)
Livingstone, Ken


Dean, Mrs Janet
Lloyd, Tony (Manchester C)


Denham, John
Llwyd, Elfyn


Dobbin, Jim
Lock, David


Dobson, Rt Hon Frank
Love, Andrew


Dowd, Jim
McAllion, John


Drown, Ms Julia
McAvoy, Thomas


Eagle, Angela (Wallasey)
McCabe, Steve


Eagle, Maria (L'pool Garston)
McCafferty, Ms Chris


Edwards, Huw
McDonnell, John


Ellman, Mrs Louise
McFall, John


Etherington, Bill
McGuire, Mrs Anne


Ewing, Mrs Margaret
McKenna, Mrs Rosemary


Field, Rt Hon Frank
Mackinlay, Andrew


Fisher, Mark
McNamara, Kevin


Flynn, Paul
McNulty, Tony


Follett, Barbara
McWalter, Tony


Foster, Rt Hon Derek
Mallaber, Judy


Foster, Michael J (Worcester)
Marsden, Gordon (Blackpool S)


Foulkes, George
Marshall, David (Shettleston)


Fyfe, Maria
Marshall, Jim (Leicester S)


Galloway, George
Marshall-Andrews, Robert


Gardiner, Barry
Maxton, John


George, Bruce (Walsall S)
Michie, Bill (Shef'ld Heeley)


Gerrard, Neil
Milburn, Alan


Gibson, Dr Ian
Mitchell, Austin


Gilroy, Mrs Linda
Moffatt, Laura


Godman, Dr Norman A
Moonie, Dr Lewis


Godsiff, Roger
Moran, Ms Margaret


Goggins, Paul
Morgan, Alasdair (Galloway)


Golding, Mrs Llin
Morgan, Rhodri (Cardiff W)


Griffiths, Jane (Reading E)
Morris, Ms Estelle (B'ham Yardley)


Gunnell, John
Mudie, George


Hall, Mike (Weaver Vale)
Mullin, Chris


Hall, Patrick (Bedford)
Murphy, Denis (Wansbeck)


Hanson, David
O'Brien, Bill (Normanton)


Heal, Mrs Sylvia
O'Brien, Mike (N Warks)


Healey, John
O'Neill, Martin


Henderson, Doug (Newcastle N)
Organ, Mrs Diana


Hesford, Stephen
Osborne, Ms Sandra


Hinchliffe, David
Palmer, Dr Nick


Home Robertson, John
Pearson, Ian


Hoon, Geoffrey
Pickthall, Colin


Hope, Phil
Pike, Peter L


Hopkins, Kelvin
Plaskitt, James


Howarth, George (Knowsley N)
Pope, Greg


Humble, Mrs Joan
Pound, Stephen


Hurst, Alan
Powell, Sir Raymond


Hutton, John
Prentice, Gordon (Pendle)


Iddon, Dr Brian
Primarolo, Dawn


Jackson, Helen (Hillsborough)
Prosser, Gwyn


Jamieson, David
Purchase, Ken


Jenkins, Brian
Quinn, Lawrie


Johnson, Alan (Hull W & Hessle)
Remmell, Bill


Johnson, Miss Melanie
Rapson, Syd


(Welwyn Hatfield
Raynsford, Nick


Jones, Barry (Alyn & Deeside
Reed, Andrew (Loughborough)


Jones, Helen (Warrington N)
Reid, Dr John (Hamilton)


Jones, leuan Wyn (Ynys Môn)
Robinson, Geoffrey (Cov'try NW)



Roche, Mrs Barbara





Rogers, Allan
Stuart, Ms Gisela


Rooker, Jeff
Swinney, John


Ross, Ernie (Dundee W)
Taylor, Rt Hon Mrs Ann


Rowlands, Ted
(Dewsbury)


Roy, Frank
Taylor, Ms Dari (Stockton S)


Ruane, Chris
Thomas, Gareth (Clwyd W)


Ruddock, Ms Joan
Thomas, Gareth R (Harrow W)


Salter, Martin
Timms, Stephen


Savidge, Malcolm
Tipping, Paddy


Sawford, Phil
Touhig, Don


Shaw, Jonathan
Trickett, Jon


Sheerman, Barry
Truswell, Paul


Sheldon, Rt Hon Robert
Turner, Dennis (Wolverh'ton SE)


Short, Rt Hon Clare
Turner, Dr Desmond (Kemptown)


Simpson, Alan (Nottingham S)
Turner, Dr George (NW Norfolk)


Singh, Marsha
Twigg, Derek (Halton)


Skinner, Dennis
Watts, David


Smith, Rt Hon Andrew (Oxford E)
Wicks, Malcolm


Smith, Miss Geraldine
Williams, Rt Hon Alan


(Morecambe & Lunesdale)
(Swansea W)


Smith, John (Glamorgan)
Williams, Alan W (E Carmarthen)


Smith, Llew (Blaenau Gwent)
Wills, Michael


Spellar, John
Winnick, David


Squire, Ms Rachel
Wise, Audrey


Steinberg, Gerry
Wood, Mike


Stevenson, George
Wray, James


Stewart, David (Inverness E)



Stott, Roger
Tellers for the Noes:


Strang, Rt Hon Dr Gavin
Mr. Jon Owen Jones and


Stringer, Graham
Ms Bridget Prentice.

Question accordingly negatived.

Dr. Vincent Cable: I beg to move amendment No. 27, in page 110, line 9, leave out '1998–99' and insert '1999–2000'.
The bad news for those who are not aficionados of capital gains taxation is that the subject is not entirely exhausted. Enough has been said in previous debates to tell us that there is considerable disquiet about the way in which important reform is being introduced. The previous amendment, tabled and moved by the official Opposition, was largely designed, I suspect, to cover the embarrassment of their official spokesman, who had committed himself to a particular form of reform. With amendment No. 27 we are making a more wide-ranging request that the Government should consult and report back to Parliament on questions of simplicity and economic efficiency.
A regrettable feature of the previous debate was its presentation, which was more partisan than was necessary. When we dealt with the issue on Second Reading, it was fairly clear that there was disquiet on both sides of the Chamber. The hon. Member for Stafford (Mr. Kidney) made an especially good contribution. In common with many of us, he had encountered some of the difficulties that practitioners will experience with the reform. The hon. Gentleman asked the Government to consider the matter afresh. We approach the reform very much in that spirit.
In many other respects, the Government have shown a commendable willingness to consult. The result of that consultation on individual savings accounts was political credit for the Government and improved legislation. On gaming legislation, the Government showed last night that they were willing to listen to criticism and to respond. The amendment is moved in the hope that the Government will react to some of the things that have been said today, many of which my colleagues and I support. We hope that the Government will respond constructively to them in due course.
The key point is simplicity. I do not pretend to be a practitioner, and I can claim honestly never intentionally to have made a capital gain sufficiently large to trouble the taxman. I suspect that many of us in the Chamber are in that position. We are reliant for advice on practitioners, and they are telling us—even those who have no ideological axe to grind—that there are horrendous practical problems associated with the proposed changes.

Mr. Bermingham: I listened only to the end of the previous debate, because I had to be elsewhere. However, it is clear to me that the debate is between those who want to benefit from short-term speculation, which was the previous Government's policy, and those who want to invest in and encourage long-term investment. The Bill is drafted in a way that makes it clear that policy must be directed towards long-term investment, thereby encouraging people to invest in their own businesses, for example, leading to their retirement, when they will incur almost a minimal notional tax burden.

Dr. Cable: I am happy to deal with the short-term, long-term issue. In many ways, the hon. Gentleman is using old-fashioned jargon and concepts that are no longer relevant to the way in which international business operates.
Perhaps the key point is simplicity. We are faced with complexity when it comes to tapering, in respect of which loss provisions are to be taken into account, and the overlap with indexation. Those factors will present serious problems to those who have to operate the system. The Financial Secretary has told us that there are no problems for software houses. However, I have been approached by several accountants, who expressed great apprehension about the information technology implications of the proposed change, which is coming not in isolation but in addition to other demands on the industry—for example, the year 2000, possibly the Dow 10.000 index problem and certainly the economic and monetary union conversion problem. A set of difficulties confront the industry, and I have outlined one more that will have to be faced by tax accountants and by others in the City. It is a genuine difficulty.
The short-term, long-term issue underlies the proposed change. I understand the theory and it is superficially plausible. It is an idea that has had a long period of gestation. I remember that Lord Kaldor was in many ways the genesis of the proposed legislation in the context of short-term capital gains tax in the 1960s. It was he who introduced the idea.
It has never been entirely clear to me that there is a fundamental short-termism problem. I operated in a company that made respectable returns, yet made 50-year investments. It operated in international capital markets, which were well attuned to long-term decisions. However, it has never been especially clear, particularly in the modern world in which we operate, where increasingly global markets meet both long-term and short-term needs, that there is a fundamental structural deficiency.
The proposed legislation will have some disadvantageous consequences. For example, many economically beneficial capital gains, by their very nature, are short term. The venture capital business is designed,

very often, to produce high-risk, short-term returns. That is the nature of the business. It is efficient, but that is the way in which it operates. Equally, there is nothing inherently beneficial in long-term investments, especially long-term, non-business investments. There is no particular advantage in locking away an investment for 20 years merely because of tax advantages. That does not encourage the right sort of entrepreneurial activity.
One of the perverse and unintended consequences of the proposed changes is that individuals will be encouraged to invest less on a private basis and more on an institutional basis through investment trusts and unit trusts, where the churning of rapid investment will take place without encountering capital gains difficulties. The Government should have a period of consultation, considering the simplicity issues and the complexity problems, including economic efficiency. Having done so, they should report back to the House of Commons.
Opposition Members raised a set of practical problems. Some of those problems have been answered and others not. The speed of tapering seems to be a problem for non-business investment. How are losses to be taken into account? Retrospectivity is a real problem, because the tapering system will not take effect for two years from now. A particular problem is associated with the restrictions that divide business and non-business investment. For example, someone with less than 25 per cent. ownership in a company will not benefit from the more generous treatment accorded to business capital gains.
All those are legitimate issues. There may be adequate answers, but we want a period of further consultation, so that the Government can meet the criticisms that have been made and approach the House with better legislation than currently exists.

Dawn Primarolo: I listened carefully to the hon. Member for Twickenham (Dr. Cable), who was repeating points that were made in the previous debate. He seemed to be arguing against the clause, whereas the amendment accepts the clause but merely delays its implementation for a year. Does he support the clause or want its implementation delayed?
I dealt in the previous debate with consultation. It is not only the Government who think that the reforms are good and will promote the long-termism that we seek to encourage. The hon. Gentleman need not rely on my word for that; the CBI, the Federation of Small Businesses and the British Venture Capital Association have all welcomed the change, because it provides a big boost to long-term investment.
In addition, the clause heralds the progressive withdrawal of indexation from the capital gains tax system and the phasing out of retirement relief. Both those features of the present system have been much complained about, not only in Committee today but repeatedly outside the House. Their replacement by a system that provides relief solely on the basis of the length of time over which the gain has been accrued is both simple to understand and easy to operate.
We therefore reject the amendment and the proposition that we should delay the reform by a year. I have already dealt with the questions of complexity and equity, and how the tax will be managed. I shall try to help the hon. Gentleman and his party, by advising them to make up


their minds whether they agree with the taper. If they agree with it, they should vote for the clause, which I hope they will. If they do not, they should know that any delay is unacceptable to the Government, so we reject their proposition.

Dr. Cable: We have no fundamental objection to the clause. After further consideration, it might perfectly acceptable. It is difficult to understand why the Government are so resistant to consultation. They have adopted that principle in many aspects of their policy and have benefited from doing so.
There are clearly many objections to the clause. They are motivated not by party political concerns but by genuine technical and procedural problems which could, with further consultation, be addressed. That is why we argue for a year's delay in the introduction of the legislation.
In another context, for example, when my colleagues and I urge a more rapid accession to EMU, Ministers often say that it is better to be right than to be quick. That is an admirable principle to apply in this extremely complex area of legislation.

Question put, That the amendment be made:—

The Committee divided: Ayes 34, Noes 240.

Division No. 262]
[7.24 pm


AYES


Allan, Richard
Kennedy, Charles (Ross Skye)


Baker, Norman
Kirkwood, Archy


Ballard, Mrs Jackie
Livsey, Richard


Beith, Rt Hon A J
Michie, Mrs Ray (Argyll & Bute)


Bell, Martin (Tatton)
Moore, Michael


Brake, Tom
Morgan, Alasdair (Galloway)


Breed, Colin
Russell, Bob (Colchester)


Bruce, Malcolm (Gordon)
Sanders, Adrian


Cable, Dr Vincent
Stunell, Andrew


Campbell, Menzies (NE Fife)
Swinney, John


Chidgey, David
Tonge, Dr Jenny


Cotter, Brian
Tyler, Paul


Ewing, Mrs Margaret
Wallace, James


Hancock, Mike
Webb, Steve


Harris, Dr Evan
Willis, Phil


Harvey, Nick



Heath, David (Somerton & Frome)
Tellers for the Ayes:


Jones, Ieuan Wyn (Ynys Môn)
Mr. Edward Davey and


Keetch, Paul
Sir Robert Smith.


NOES


Abbott, Ms Diane
Bermingham, Gerald


Adams, Mrs Irene (Paisley N)
Betts, Clive


Ainger, Nick
Blizzard, Bob


Ainsworth, Robert (Cov'try NE)
Borrow, David


Alexander, Douglas
Bradley, Keith (Withington)


Allen, Graham
Bradley, Peter (The Wrekin)


Anderson, Janet (Rossendale)
Bradshaw, Ben


Armstrong, Ms Hilary
Brinton, Mrs Helen


Ashton, Joe
Brown, Rt Hon Nick (Newcastle E)


Atherton, Ms Candy
Brown, Russell (Dumfries)


Atkins, Charlotte
Browne, Desmond


Barnes, Harry
Burden, Richard


Battle, John
Burgon, Colin


Bayley, Hugh
Byers, Stephen


Begg, Miss Anne
Caborn, Richard


Bell, Stuart (Middlesbrough)
Campbell, Alan (Tynemouth)


Benn, Rt Hon Tony
Campbell, Mrs Anne (C'bridge)


Bennett, Andrew F
Campbell, Ronnie (Blyth V)





Campbell-Savours, Dale
Jamieson, David


Canavan, Dennis
Jenkins, Brian


Casale, Roger
Johnson, Alan (Hull W & Hessle)


Caton, Martin
Johnson, Miss Melanie


Chapman, Ben (Wirral S)
(Welwyn Hatfield)


Chaytor, David
Jones, Barry (Alyn & Deeside)


Chisholm, Malcolm
Jones, Helen (Warrington N)


Clark, Dr Lynda
Jones, Ms Jenny


(Edinburgh Pentlands)
(Wolverh'ton SW)


Clarke, Charles (Norwich S)
Jones, Marlyn (Clwyd S)


Clarke, Eric (Midlothian)
Kaufman, Rt Hon Gerald


Clarke, Tony (Northampton S)
Keeble, Ms Sally


Clelland, David
Kennedy, Jane (Wavertree)


Clwyd, Ann
Kidney, David


Coaker, Vernon
Kilfoyle, Peter


Coffey, Ms Ann
Kingham, Ms Tess


Cook, Frank (Stockton N)
Kumar, Dr Ashok


Cooper, Yvette
Lawrence, Ms Jackie


Cousins, Jim
Lepper, David


Cox, Tom
Leslie, Christopher


Cranston, Ross
Levitt, Tom


Cryer, Mrs Ann (Keighley)
Lewis, Ivan (Bury S)


Cummings, John
Liddell, Mrs Helen


Cunliffe, Lawrence
Livingstone, Ken


Cunningham, Jim (Cov'try S)
Lloyd, Tony (Manchester C)


Dalyell, Tam
Lock, David


Darling, Rt Hon Alistair
Love, Andrew


Davidson, Ian
McAllion, John


Davies, Rt Hon Denzil (Llanelli)
McAvoy, Thomas


Davies, Geraint (Croydon C)
McCabe, Steve


Dean, Mrs Janet
McCafferty, Ms Chris


Dobbin, Jim
McDonnell, John


Dobson, Rt Hon Frank
McFall, John


Dowd, Jim
McGuire, Mrs Anne


Drown, Ms Julia
McKenna, Mrs Rosemary


Eagle, Angela (Wallasey)
Mackinlay, Andrew


Eagle, Maria (L'pool Garston)
McNamara, Kevin


Edwards, Huw
McNulty, Tony


Ellman, Mrs Louise
McWalter, Tony


Etherington, Bill
Mallaber, Judy


Field, Rt Hon Frank
Marsden, Gordon (Blackpool S)


Fisher, Mark
Marshall, David (Shettleston)


Flynn, Paul
Marshall, Jim (Leicester S)


Foster, Rt Hon Derek
Marshall-Andrews, Robert


Foster, Michael J (Worcester)
Maxton, John


Fyfe, Maria
Michie, Bill (Shef'ld Heeley)


Galloway, George
Milburn, Alan


Gardiner, Barry
Mitchell, Austin


George, Bruce (Walsall S)
Moffatt, Laura


Gerrard, Neil
Moonie, Dr Lewis


Gibson, Dr Ian
Moran, Ms Margaret


Gilroy, Mrs Linda
Morgan, Rhodri (Cardiff W)


Godman, Dr Norman A
Mudie, George


Godsiff, Roger
Mullin, Chris


Goggins, Paul
Murphy, Denis (Wansbeck)


Golding, Mrs Llin
O'Brien, Bill (Normanton)


Griffiths, Jane (Reading E)
O'Brien, Mike (N Warks)


Grocott, Bruce
O'Neill, Martin


Gunnell, John
Organ, Mrs Diana


Hall, Mike (Weaver Vale)
Osborne, Ms Sandra


Hall, Patrick (Bedford)
Palmer, Dr Nick


Hanson, David
Pearson, Ian


Heal, Mrs Sylvia
Pickthall, Colin


Healey, John
Pike, Peter L


Henderson, Doug (Newcastle N)
Plaskitt, James


Hesford, Stephen
Pope, Greg


Hinchliffe, David
Powell, Sir Raymond


Home Robertson, John
Prentice, Gordon (Pendle)


Hoon, Geoffrey
Primarolo, Dawn


Hopkins, Kelvin
Prosser, Gwyn


Howarth, George (Knowsley N)
Purchase, Ken


Humble, Mrs Joan
Quinn, Lawrie


Hurst, Alan
Rammell, Bill


Hutton, John
Rapson, Syd


Iddon, Dr Brian
Raynsford, Nick


Jackson, Helen (Hillsborough)
Reed, Andrew (Loughborough)






Reid, Dr John (Hamilton N)
Stringer, Graham


Robinson, Geoffrey (Cov'try NW)
Stuart, Ms Gisela


Roche, Mrs Barbara
Taylor, Rt Hon Mrs Ann


Rogers, Allan
(Dewsbury)


Rooker, Jeff
Taylor, Ms Dari(Stockton S)


Ross, Ernie (Dundee W)
Taylor, Rt Hon John D (Strangford)


Rowlands, Ted
Thomas, Gareth (Clwyd W)


Roy, Frank
Thomas, Gareth R (Harrow W)


Ruane, Chris
Timms, Stephen


Ruddock, Ms Joan
Tipping, Paddy


Savidge, Malcolm
Touhig, Don


Sawford, Phil
Trickett, Jon


Shaw, Jonathan
Truswell, Paul


Sheerman, Barry
Turner, Dennis (Wolverh'ton SE)


Sheldon, Rt Hon Robert
Turner, Dr Desmond (Kemptown)


Short, Rt Hon Clare
Turner, Dr George (NW Norfolk)


Simpson, Alan (Nottingham S)
Twigg, Derek (Halton)


Singh, Marsha
Watts, David


Skinner, Dennis
Wicks, Malcolm


Smith, Rt Hon Andrew (Oxford E)
Williams, Rt Hon Alan


Smith, Miss Geraldine
(Swansea W)


(Morecambe & Lunesdale)
Williams, Alan W (E Carmarthen)


Smith, John (Glamorgan)
Wills, Michael


Smith, Llew (Blaenau Gwent)
Winnick, David


Spellar, John
Wise, Audrey


Squire, Ms Rachel
Wood, Mike


Steinberg, Gerry
Wray, James


Stevenson, George



Stewart, David (Inverness E)
Tellers for the Noes:


Stott, Roger
Ms Bridget Prentice and


Strang, Rt Hon Dr Gavin
Mr. Jon Owen Jones.

Question accordingly negatived.

Clause 119 ordered to stand part of the Bill.

Clause 25

CHARGE AND RATES FOR 1998–99

Question proposed, That the clause stand part of the Bill.

Mr. David Heathcoat-Amory: The clause deals with the rates of income tax that should apply for the current financial year. It is about the only area of taxation not to be increased in the Budget. In this massive tax-raising Finance Bill, the Government are leaving the rates of direct personal tax the same. That is a small mercy, given that other provisions of the Bill increase taxes savagely.
It is a matter of record that in last year's Finance Bill the Government carried out a £5 billion-a-year raid on pension funds, which sent exactly the wrong message to potential savers. The Government say that they should put money by to provide for their old age or to increase their self-reliance, but they may tax such funds at a future date.
The effective rate of corporation tax has been increased in the Budget, adding to what the CBI says is a £20 billion increase in company taxation during this Parliament. Yesterday, we debated indirect tax increases that have been introduced in the face of a rising tide of illegal sales and smuggled imports. Road fuel tax, which is another indirect tax, is being increased way over the rate of inflation. Motorists face a £9 billion additional tax burden during this Parliament.
In that context, it is a small but welcome mercy that the clause leaves the rates of income tax unaltered. However, I must contrast that with the previous Government's record. In 1979, we inherited a basic rate of income tax of 33 per cent. During successive Parliaments, we cut the rate to 23

per cent. We also inherited a higher rate of 83 per cent., which, if we include the surcharge on investment income, meant a staggering top rate of 98 per cent. on income. We cut that to 40 per cent.
The Labour party now seems to support those cuts, because it has left those rates unaltered. The Government accept them, despite the fact that, during those Parliaments, when we reduced tax year by year, Labour Members resisted and voted against all the relevant provisions. They have at last accepted that a low-tax economy is a healthy economy, but it took 18 years for the penny to drop. I welcome their change of view, albeit belated.

Mr. Bermingham: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: I shall give way to the hon. Gentleman, who was in the House for at least part of that time.

Mr. Bermingham: Regrettably, I was here for all of it, bar the first four years. The Conservative Government reduced the top and the standard rates of income tax, but the reductions were greater at the top end of the scale than at the bottom. Thus there was a widening of the gap in disposable income. It is a little sad for the right hon. Gentleman to carp about the present Government, who are at least trying to reduce income tax at the bottom end to help those people. The Conservative Government helped only those at the top end.

Mr. Heathcoat-Amory: I take it that the hon. Gentleman is criticising the present structure of income tax. He seems to be complaining that the cut from 98 per cent. to 40 per cent. was greater than the cut from 33 per cent. to 23 per cent.—which, of course, is arithmetically correct. If that is indeed a criticism, however, the hon. Gentleman might care to ask his own Front Benchers why they are doing nothing about it. This, the second of the new Government's Finance Bills, gives them an opportunity to rectify the imbalance, if that is the way in which they perceive it. There is an interesting difference between the opinions of the hon. Gentleman—opinions that I respect—and those of members of his own Front Bench, who are doing nothing to respond to his opinions.
Perhaps there remains a philosophical difference at the root of this. We cut the rate of income tax, in the teeth of opposition from Labour and, I should add, the Liberal Democrats, because we believe in low personal taxes and those parties do not—or, at least, most of their members do not. We consider it right to leave more money in people's pockets whenever possible; we also think that people make better spending decisions than the state in regard to a wide range of financial activities. Furthermore, we believe that a low-tax economy tends to be more efficient and dynamic—and, given that the global market is here to stay, we are engaged in an international tax competition that, thanks to the previous Government, we are winning.

Mr. James Plaskitt: I have listened to the right hon. Gentleman's protestations about the merits of low tax, as he sees it. Is it not the case, however, that, after the Conservatives' 18 years of government, the proportion of tax raised from income tax was the same as it had been at the start of that period?

Mr. Heathcoat-Amory: No. The proportion of income tax raised was not greater, and, if the hon. Gentleman


consults the Budget statement published in November of the year before last, he will be able to see confirmation in writing.
I do not know whether the hon. Gentleman believes, as I do, that low taxes are not just good for the economy, but good for people's direct standard of living. It seems, however, that the Labour Government—belatedly—have accepted the policies; whether they have accepted the underlying thinking and philosophy we shall find out during the course of a full Parliament.
If we were still in office, we would continue our march towards a 20 per cent. standard rate of income tax. By now we would probably have taken another penny off the standard rate, or we might have employed the alternative of widening the 20 per cent. band that we created several years before the end of the previous Parliament. In other words, there were two ways of ending up with a standard rate of 20 per cent., and we would have pursued either or both in order to fulfil our pledge. We were moving decisively towards a 20 per cent. rate by the time of the general election.
Although the Labour party apparently accepts the policy, it still seems to have—strangely—what appeared at the time to be an even more ambitious policy: that of introducing a starting income tax rate of 10p in the pound. We heard a great deal about that before the general election, when Labour was looking for votes, but it now seems to have gone cold on the whole project. One of my questions to the Minister is this: can he bring us fresh news of when Labour intends to introduce a 10p starting rate, or is this another broken Labour party promise in the making?
I am aware that it was the Liberal Democrat party that wished to debate these matters on the Floor of the House, and we look forward to hearing from its spokesman in a moment. Some years ago, the Liberal party was the party of low taxation. Until the second world war, my family were Liberals—perhaps because they were in business, and felt that low taxes brought benefit to the British economy and to workpeople generally. That was a Liberal article of faith: to lower taxation levels.
At some point since then, however—it is difficult to pinpoint the year—the Liberal party converted itself, and has become the party of tax and spend. In some ways, it is well to the left of the Labour party as it is now. The Liberal Democrats appear to believe in high taxation as a moral good, and to ignore, or overlook, the economic damage that it causes.
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As all hon. Members will probably have noticed, however, the Liberal Democrats are rather selective in that Mr. Bermingham: Of course I do. It is sensible, and regard. Yesterday, they voted with us to reduce the duty on fuel. That struck some of us as rather odd, because the Liberal Democrats used to be in favour of higher fuel duties, for environmental reasons. From that we can conclude that they are somewhat opportunistic in their new-found belief in high taxation. [Interruption.] I hear cries of, "No, "and, "Impossible," from the Opposition Benches, but, as one who may be more familiar with the Liberal Democrat party on a democratic basis, I can assure all hon. Members that this is not entirely out of character.

The Liberal Democrats appear to want to increase taxes when they can get away with it. They tabled an amendment to the clause with the intention of increasing the rate of income tax, but, as they might have known, that is out of order: all Finance Bill debates take place on the basis of motions already passed by the House that put a limit on taxes. We can reduce them, as we have tried to do throughout the Committee stage so far, but we increase them. Sadly, the Liberal Democrats therefore cannot speak to the amendment concerned; but doubtless, given their known intentions, they will try to force the same thing on us by another route.
I can tell the Liberal Democrats that we will not support them on that. We are the low-tax party; moreover, we would not dream of supporting a Liberal Democrat move to increase the burden of taxation on the people whom we represent.

Mr. Bermingham: I wait with interest to hear what the Liberal Democrats say. We know from experience, and from reading their leaflets—entitled "The Focus"—that they say one thing in Lancashire and another in Lincolnshire, one thing in Surrey and another in Staffordshire. It is never consistent, and never realistic.
No doubt the Liberal Democrats will say that they want to put a penny on income tax. They will then come up with some spurious explanation, saying that they want to spend the money here or there. The fact that the present Government have spent more on education, health and so forth than the Liberal Democrats ever proposed will no doubt be ignored like everything else. I do not intend to say more about that. I have made my comments about Liberal Democrats. They know my views about their fiscal propriety—if I can put it in that way—and about their taxation policies. I think that their policies are rubbish. They are opportunistic: they say one thing one day and another thing another day—but let us turn to the real world.
The Opposition spokesman, the hon. Member for Wells (Mr. Heathcoat-Amory), was kind enough to say that he listens to my observations. He must know from what I have said over the past 15 years that I do not like income tax. I think it is probably the most unfair and destructive form of taxation possible—but I am not a Poujadist. When the previous Government lowered both the higher and the standard tax rates, it was clear that the spending power that resulted benefited the rich at the expense of the poor.
I shall not criticise my own party tonight, because it has only just taken office, and it would not be realistic to expect it to sort out the messes created in the past 18 or 19 years in the space of 18 or 19 months.

Mr. Norman Baker: Does the hon. Gentleman support his party's pledge not to increase the top rate of tax in this Parliament?

Mr. Bermingham: Of course I do. It is sensible, and totally in line with what I have always said—that income tax is not a sensible tax.
In the first year or two of the Parliament, I do not expect significant changes in the income tax structure. I understand that our manifesto said that we would not put up the rates of tax—I shall corrected if I am wrong—and, without doubt, the Government will ahhere to that. I expect that a 10 per cent. Starting rate will be introduced, but we cannot expect the Government to do that overnight because it has spending implications.
The best way to deal with income tax is to increase the country's wealth, and the Government are succeeding in that. With more people going back to work and fewer on benefit, there are greater incentives, and that encourages production and investment in new businesses. More jobs and greater wealth will be created, and the tax take will rise. It is already beginning to rise and, as it does, there will be more surpluses and the Government can choose what to do with them.

Mr. Tim Collins: The hon. Gentleman has been most courteous in giving way. He rightly says that the route to greater resources for the priorities that many of us share is fast growth. Why does the Red Book, which projects ahead to the end of this Parliament, show that at no future point will growth be as rapid as it was in the Government's first year in office?

Mr. Bermingham: We must deal with market forces, world economic conditions and other factors. If the Government said that they intended to grow and grow like Topsy and that did not happen, the hon. Gentleman would say, "Gosh, the Government have not lived up to their Red Book promises." I prefer them to be cautious and to express their hopes while believing that they can surpass them just to show that that can be done.
The hon. Gentleman smiles. When I was in opposition, I used to smile at Government comments. Sometimes I was right and sometimes I was wrong. I suspect that the hon. Gentleman will be proved wrong, because there is underlying growth in the economy. With people being encouraged to return to work and a decrease in benefit spending, the country's wealth will grow. GDP growth is what matters because, the richer a country becomes, the greater are the funds to carry out the policies that were in the manifesto and to create a surplus.
I do not normally speak in Budget debates, save to make the occasional terse comment. In the next year or two, when that surplus begins and the Government examine taxation, I hope that their first priority will be the lower-paid. I hope that we shall seek to enlarge the bands in which no tax or low tax is paid, and that we shall leave the top rate as it is so that the benefit will flow to those who have not rather than to those who have. That is my earnest prayer. We shall see what the Liberal Democrats have to offer. It will be a penny here and a penny there, but I am sure that the Minister will deal adequately with their proposals.
The debate will show the country that the Government have their priorities right. They will not be over-ambitious and will not jump into the dark. They will plan their taxation policies correctly, but will always bear in mind the interests of lower-paid people rather than those who are in the higher-income brackets.

Dr. Cable: Clause 25 is arguably the most important in the Bill, and we intend to oppose it, but for reasons that are different from those of Conservative Members. Hon. Members have been trying to make my speech for me but perhaps I may be permitted to say a few words for myself and my colleagues. Our approach is quite explicit, and I do not understand why hon. Members should be mystified. We have plainly said that the basic tax rate should be 1p higher, that it should be 24p, and that the higher rate should be 50p rather than 40p. That has been set out many times, and there is nothing mysterious about it.
Our policy is described by Conservatives as a tax-and-spend approach—that is their cliché—but we think that some additional public spending is required. It has been suppressed for many years, and there should be transparent additional taxation to fund extra public spending.

Mr. Christopher Leslie: Perhaps I can tell the hon. Gentleman why there is a little confusion about the Liberal Democrat tax plans. The party's manifesto pledges at the general election add up to far more than 1p on income tax could ever provide. There are plans to phase out the contributory principle for state pensions, proposals for thousands more police officers, and plans to spend millions more on the national health service. In Committee last week on the Teaching and Higher Education Bill, the hon. Member for Harrogate and Knaresborough (Mr. Willis) committed the Liberal Democrats to student support for all those over the age of 18 in higher and further education. That would cost £billion. Perhaps that is why there is a little confusion.

Dr. Cable: I have already mentioned two key revenue changes. The first is 1p on income tax and the second relates to higher rates, and we explain those changes specifically and in detail. The hon. Gentleman may have a free copy of the document that shows how the sums balance in the current financial year. All hon. Members may not agree that additional direct taxation is required, but we think it is, and we have itemised the expenditure. Hon. Members may disagree with it, but they should not pretend that the sums do not add up, because they do.

Mr. Plaskitt: If the tax sums add up, why do the Liberal Democrat proposals imply an increase in borrowing of £23.5 billion?

Dr. Cable: Borrowing and debt raise another big issue. In our view, the Government approach to public debt has been excessively cautious. At this stage of the economic cycle, it is not a prudent use of Government revenue to make large-scale reductions in Government debt. Public sector requirements in key services such as health and education, and investment requirements in public transport, for example, require adequate funding. For 18 years, those services were starved, and resources should now be allocated to them. The Government should not prioritise debt reduction.
I have spoken about the broad philosophy, and I shall now deal with petrol duty. We are not hostile to the principle of an increase in petrol duty, which has sound environmental and revenue reasons. Our position on that was clearly set out. We think that the additional revenues from petrol tax should have been hypothecated and set aside for public transport spending. That was the rather different reason why we decided to vote with the official Opposition.
There are three simple reasons for our belief that a modest increase in personal taxation is required. The first relates to revenue that is specifically allocated to specific forms of public expenditure. We have said that the increase in personal taxation should be specifically set aside for education. In that context, we are discussing £1.8 billion. I do not want to rehearse the detailed arguments on education policy because the Committee is discussing taxation policy, but those of us who are on the


doorsteps helping our councillors encounter two contrasting situations. In many boroughs, education provision is being cut, the number of teachers is being reduced and services are declining. Although the Government are undoubtedly providing additional resources, they are insufficient to offset that trend.
The second phenomenon, which occurs in my borough, is that education services are being maintained. Of course, my borough is committed to education. That is being achieved within capping limits only as a result of major cuts in social services, for example. In other words, insufficient resources are coming through. We believe that the penny in the pound on income tax is necessary to generate the revenue to avoid making such cuts.

Mr. Derek Twigg: I take the hon. Gentleman's point about council revenues, but I was talking to two head teachers in my local authority of Halton—where social services have not been cut—who told me that their school budgets had increased by £100,000. Indeed, the total increase in education spending has been £2 million—people have never had it so good. I am not sure where all this doom and gloom is coming from.

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Dr. Cable: The hon. Gentleman cannot travel very widely; if he did, he would hear a very different story. Many councils—Labour as well as Liberal Democrat—are hitting out against capping limits, as the pain that those limits cause is being felt partly in the education system and partly elsewhere.
We support an increase in personal taxation, especially in the basic rate, to fund increased education provision. We also argue for it as a basic economic regulator. Over the past year, we have consistently said that the Government have the mix of monetary and fiscal policy wrong. We have argued that they could have avoided many of the difficulties that they have encountered in the past few months, especially as a result of the appreciating pound and high interest rates, if they had resorted to taxing personal consumption—we believe that that basic intellectual argument still holds.
We also believe—we are explicit about this—that more fairness is needed in the tax system: in other words, there should be income distribution. We shall continue to argue that a modest—not punitive—increase in the basic and higher rates of tax represents the best way in which to make the tax system fairer.

Mr. Collins: The hon. Member for St. Helens, South (Mr. Bermingham) made an elegant speech. Perhaps there is a note of unusual bipartisan agreement, as he seemed to be saying that the test of the Government's success would be whether, in this Parliament, they generated faster growth and lower unemployment than in the years before the general election. I am happy to join him in wanting that as a test, although the Red Book does not suggest that there will be faster growth. He may be right to say that his colleagues on the Treasury Bench are being unnaturally cautious and are grossly underestimating the great growth bonanza that they will produce—we shall see.
We shall also find out whether unemployment continues to fall as fast as it did in the year or two before, and in the year since, the general election, or whether,

as increasing numbers of economic experts expect, it is likely to start rising soon. If, as the Government predict, growth slows down and if, as most City experts and others predict, unemployment begins to rise, perhaps the hon. Gentleman will, on the basis of his elegant speech, join me in the belief that the Government's economic policies are not working as magically as he hopes.
I devote the bulk of my remarks, however, to the curious Liberal Democrat position and the speech of the hon. Member for Twickenham (Dr. Cable). The Prime Minister rightly uses the phrase "the magic penny" to refer to the penny on income tax, which, as the hon. Member for Shipley (Mr. Leslie) pointed out, Liberal Democrats expect to pay for everything—the police, the health service, education and all the other massive increases in public expenditure that they want.
The hon. Member for Twickenham said that the Liberal Democrat policy on fuel taxes was wholly consistent. He said that Liberal Democrats had voted against an increase in petrol taxes—even though, in principle, they favoured it—because they wanted the revenue to be hypothecated. It will not be long before we find examples of Liberal Democrat literature in which they make hay out of the fact that they voted against an increase in petrol tax, but I doubt whether they will mention their support for such an increase in principle.
The magic penny is curious. Whatever the basic rate of income tax has been, the Liberal Democrats have argued that it should be exactly one percentage point higher. Now that it is 23 per cent., they want it to be 24 per cent.; when it was 24 per cent., they wanted it to be 25 per cent.; and when it was 25 per cent., they wanted it to be 26 per cent.
One of the points about which the two main parties agree is that there should be a consistent target for the basic rate of tax. The Conservative Government set a target of 25 per cent., and after we had achieved that, we set another target of 20 per cent.—as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, we had made great strides towards reaching that target in the previous Parliament, and would no doubt have gone further if we had won the general election. The Labour party gave the clear commitment in its manifesto that it would not increase the basic rate of income tax—that is a rare example of a pledge that it has kept. Moreover, the Labour Government have a target, as we did.
The Liberal Democrat position seems to be that the tax rate should be one percentage point higher than whatever figure the other two parties pick, as if, whatever the rate is, it is one percentage point below the ideal. That strategy cannot be explained by any analysis of what is needed for public services or the smooth running of the economy; it can be explained only by the fact that the Liberal Democrats want a policy that they believe differentiates them from other parties, in such a way—they naively assume—as to win them votes.
The Liberal Democrat policy is not likely to win them votes, however, as people do not believe that, following the vast tax increases in the previous two Budgets, economic problems will be solved by an increase in income tax. People are saying that they are already paying too much council tax, petrol tax and income tax—they do not want to pay any more. The Liberal Democrat penny strategy is exhausting public patience, and will further undermine what small respect the public have for their economic credibility.

The Chief Secretary to the Treasury: (Mr. Alistair Darling): It would be tempting to follow the hon. Member for Westmorland and Lonsdale (Mr. Collins) by launching another attack on the Liberal Democrats, but I shall not. [HON. MEMBERS: "Go on."] Not yet, anyway, as I want first to deal with the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory). I think that I can do that briefly, as he covered familiar ground in setting out his stall.
On corporation tax, we have undertaken a long overdue reform to put in place a modern system, in which managers and investors, rather than the tax man, make business decisions. In the longer term, companies will gain as a result of our reforms.
The right hon. Member for Wells also mentioned the tax burden and tax rises, conveniently overlooking the fact that the Conservative Government lost office largely because they broke their promises on tax. We all remember that, despite the fact that the Conservatives fought the 1992 general election on an explicit promise to reduce tax, they increased it. Those of us with longer memories will remember that, in 1979, Lord Howe, as he now is, said that our accusation that he was planning to double the rate of VAT was a nasty Labour lie, yet, within a month of coming to office, the Conservative Government did exactly that. A decade or so later, they broke another promise on VAT by imposing it on domestic fuel after they had said that they would not.
Moreover, we all remember the 22 Tory tax rises that contributed to the fact that most people were paying more tax at the time of the general election last year than they were in 1992. The right hon. Gentleman is ill placed to attack us on tax—although I understand why he has to do it—as we are keeping our promises. I cannot add anything further on the Conservative position, except to pay a back-handed tribute to my immediate predecessor, Mr. William Waldegrave, as we must now call him. Contrary to the right hon. Gentleman's assertion that Conservatives do not like imposing taxes, Mr. Waldegrave said during an interview on the "Dimbleby" programme, in which I was taking part, that, when the Conservatives increased taxes, they favoured indirect taxes, as the country knew only too well.
I come to the Liberal Democrat attack—if, indeed, that is what it was. In some ways, I feel desperately sorry for the hon. Member for Twickenham (Dr. Cable), as I had the distinct impression that his heart was not in what he was saying. As the right hon. Member for Wells said, the Liberal Democrats chose the subject of this debate. It is well known that, when we have these days on the Floor of the House, the Opposition, in recent years at any rate, have to choose the subjects for debate. The Government of the day—ourselves and before that the Conservatives—always took the view that whatever the Opposition wanted on the days allocated could be the subject of the debate; it is a matter for the Opposition.
The Liberal Democrats asked that we debate this clause, yet tonight we have had seven or eight minutes from the hon. Member for Twickenham, who dutifully set out the Liberal Democrat position. Indeed, it is worth recording that only one other Liberal Democrat Member is present. I know that the Liberal Democrats were a bit down on the previous Division, but they seem to be completely out in relation to the next one.
The clause honours our manifesto commitment. We said that we would hold the top and basic rate of income tax for the lifetime of this Parliament. We have

kept and will keep that promise, no matter what the Liberal Democrats or anyone else says. We have also committed ourselves to introducing a lower starting rate of tax, as soon as it is prudent to do so. Why did we do that? We did that because it provides a fair tax system. We want people to have incentives to work and, when they do work, we want to ensure not only that works pays, but that people see the reward for their work. That is the whole point of a fair tax system.
Our reforms—the working families tax credit, when it is introduced, and the reforms to the national insurance system—are all geared to ensuring that everyone, particularly those on lower incomes, who have had a raw deal in the past few years, benefits from the fruits of their labours. That seems to be a principle that is worth promoting and preserving.
Of course, the Liberal Democrats want to increase the basic rate of income tax by 1p, or least so they said tonight in Committee. They do not always say that. Perhaps I could apologise to the hon. Member for Gordon (Mr. Bruce) because I would normally have written to him but, frankly, it never occurred to me that he would not be here to press his attack. However, I am sure that he will understand that I really have to refer to him, in the same way as Opposition Members refer to my right hon. and hon. Friends.
Despite the fact that we are being told tonight that the Liberal Democrats want to put up income tax—because, basically, they feel that it is the right thing to do and that the money raised can go to education, so they say—the hon. Member for Gordon, at the end of March in an interview with the Herald, when he was at the Inverness conference of the Scottish Liberal Democrats, which was rather like the Chamber tonight in that the Liberal Democrats did not turn up for that either, said:
We have business people here today who don't want to hear us saying we'll be putting up your taxes.
That is curious because, in Scotland, the Liberal Democrats, like other parties, hope to win seats at the elections to the Scottish Parliament. There we have the Liberal Democrat finance spokesman saying that business people and others do not want to hear the Liberal Democrats saying, "We'll put up your taxes."
The hon. Member for Gordon went on to say—to put this in its proper context, because I would hate to be accused of quoting anyone out of context—in the context of the Scottish Office budget, that the first thing that we should do is
dig into that budget to find out whether there are savings to be made.
That is odd, because that is precisely the line that the Government are taking with their comprehensive spending review.

Dr. Cable: Will the right hon. Gentleman give way?

Mr. Darling: I shall in one moment, because I am sure that the hon. Gentleman will want to explain his colleague's position.
Our position is that, in a budget—in the case of the UK, of more than £350 billion—it is inconceivable that spending cannot be better directed to meet the Government's priorities. Indeed, within the first year of our term of office, thanks to the rigorous control that we


have exercised over public spending, we have directed resources to this Government's priorities. However, an accusation has been levelled against the Liberal Democrats, and I am sorry to say that it is familiar one. It is not just the right hon. Member for Wells who makes it. One or two of us have experience of Liberal Democrats saying one thing in one place and another when it suits them elsewhere.
The accusation is that the hon. Member for Gordon sought to give people in Inverness—I understand why he did it—the impression that the Liberal Democrats did not want to put up their taxes and that, first, they should have a review of, in that case, Scottish expenditure. Why are the Liberal Democrats saying one thing in Inverness and something completely different tonight in the Chamber?

Dr. Cable: I hate to interrupt the Chief Secretary's love-in with the Conservatives on this issue, but, with respect, does he not accept that nothing in the quotation that he has just read contradicts the belief of my hon. Friend the Member for Gordon (Mr. Bruce) that we should have an increase in personal taxation for public expenditure?

Mr. Darling: The hon. Member for Gordon did not say that. His first port of call, rightly, was to examine existing spending. Then he was going to reach a decision on increasing taxation. At the general election, the Liberal Democrats' position was, "Never mind what we spend now: tax is going up by a penny."
I want to explore why the Liberal Democrats are making that point. It is worth bearing in mind this simple fact: 1p on the basic rate of income tax raises about £1.8 billion. This year, so far, since the Government came to power, we have made proposals to invest £2.5 billion in education. There is another difference. Of that £2.5 billion, £1.3 billion comes from the windfall tax on the privatised utilities, which, of course, the Liberal Democrats voted against.

Mr. Baker: Will the right hon. Gentleman give way?

Mr. Darling: I will in one moment.
I was struck by the fact that, again, the hapless hon. Member for Gordon made this point in the debate on the previous Finance Bill. He was criticising us for introducing the windfall tax and said:
That proves a basic point—billions of pounds cannot be taken out of the utilities and have no impact on … those organisations."— [Official Report, 15 July 1997; Vol. 298, c. 211.]
He must be the only man in Britain who believes that. Everyone else accepts that the windfall tax was fair, justified and eminently payable. Even the privatised utilities accept that, so why not the Liberal Democrats?

Mr. Baker: May I return the Minister to a point that he raised a moment ago? We regularly hear the Prime Minister and others compare spending pledges. Are not the Liberal Democrat pledges for one year, because income tax is calculated in a one-year period? Are not the Government's pledges for the length of the Parliament, and therefore not comparable?

Mr. Darling: I am going to come on to the Liberal Democrat pledges. The pledges that I am about to go through and to remind the hon. Gentleman about, because he no doubt read his manifesto before he went on the hustings, were by no stretch of the imagination deliverable in one year.
As I was rude about the fact that there were two Liberal Democrat Members in the Chamber earlier, I should record that I think that there are three now, so I need to adjust upwards my estimate of their attack.

Mr. Leslie: Skimming through a few interesting papers, I find a copy of a document entitled "Make the Difference", a supplement to the Liberal Democrat manifesto, which I commend to the hon. Member for Lewes (Mr. Baker). It sets out not a one-year commitment in terms of the 1p on income tax, but a full five-year commitment. Has he not been contradicting himself all the way through?

Mr. Darling: I think that the Liberal Democrats are sometimes prone to read their manifesto selectively, for reasons that I well understand, but the fundamental difference between the Government and the Liberal Democrat party is that we are building a stable economic platform which will provide long-term growth. Without that sustainable long-term growth, we shall not get the public finances into the position that we need to get them into, to provide the services that most of us want.
The Liberal Democrats—I understand why they are doing this, because when they go around the doors, they have got to be able to explain at least to some potential electors what the difference is between them and us, and other parties—are saying, "Vote for us. We will put a penny on education." What remains unsaid, because the Liberal Democrats dare not say it, is that they can say that because they know that they will never be elected and never have to do anything about it.

Mr. Baker: Will the right hon. Gentleman give way?

Mr. Darling: I shall in a moment, because the hon. Gentleman may want to answer this point.
What irritates just a little is that this penny is meant to cover a multitude of promises. The Liberal Democrats want to spend more on education, health, transport, the environment, councils, crime, funding for students, hill farmers and cold weather allowances. Of course, they tell us that the reserve is not high enough either, so it will have to be increased, and they can do all that for a penny, at no cost.

Dr. Cable: Will the right hon. Gentleman give way?

Mr. Darling: I will give way to the hon. Gentleman after I draw his attention to one or two points.
In the Liberal Democrats' 1997 manifesto—time does not permit me to read the whole thing—we find free eye and dental check-ups, an enhanced carers' benefit, phasing out the contributory principle for state pensions, establishing a new partial disability benefit, providing for fees for adult learners, increasing the present number of students in higher education by 2 million—if you please—making improvements in the scope and level of


housing benefit, restoring benefit entitlements to students, restoring benefit entitlements to 16 and 17-year-olds, restoring full income support for under 25-year-olds, substantially increasing investment in public transport, 3,000 more police officers, and investing at least £540 million every year in the NHS—by the way, we are providing £2 billion this year alone. All that for a penny? It simply defies belief.

Dr. Cable: rose—

Mr. Darling: I said that I would give way, and I will. I should like the hon. Gentleman to deal with those points.
When I read all those promises and listen to his comments, how am I to square them with a note from the Association of Liberal Democrat Councillors of 16 December 1997, which states:
The constitutional role of an Opposition group is to oppose and not to martyr itself trying to produce a Budget"?
Does not that statement say it all about the Liberal Democrats?

Dr. Cable: As for that quotation of our councillors, is not the Chief Secretary to the Treasury aware that education is a local government service, that many of our councillors are running councils, and that many Liberal Democrat-controlled councils—led by mine, as it happens—are at the top of the Government's own tables on education performance? One of the main reasons for our success is that our councillors are willing to use their limited discretion in increasing council tax to fund increased education provision in their council area.

Mr. Darling: I notice that, in March 1997, in the Royal Borough of Kingston upon Thames—I am pleased to call it a "royal borough", although, in 1994, its Liberal Democrat leader, who was an anti-monarchist, wanted to drop the "royal"—the Liberal Democrats voted to cut the education budget by £1.5 million.
The first point is that the Government are providing education funding over and above that planned by the previous Government, and that that increased funding is beginning to make a difference. The second point is that the Government's comprehensive spending review, which is nearing completion, will set our spending priorities not only for this Parliament, but beyond it.
We made it clear in our election manifesto and subsequently that education is a priority. Our actions in delivering education—not only in increased spending, but in the efforts made by my right hon. Friend the Secretary of State for Education and Employment and his Ministers to improve standards—are demonstrating to people that they now have a Government who care about public education and are making a difference.
The difference between us and the Liberal Democrats is that we are making progress, on a steady and sustainable basis, on spending and standards. We are not making ludicrous promises that we know cannot possibly be delivered.

Mr. Baker: For the record—as the Minister knows—the penny on income tax was to be used solely for education. Our other pledges were all identified and costed in our manifesto. The free eye and dental checks were to be paid for by an extra 5p tax on a packet of 20 cigarettes.
However, what is the Minister's view on the ideal taxation level? We have heard that, although a 10 per cent. starting rate will be introduced, the Tory tax levels will be maintained. Presumably, therefore, the Minister thinks that the Tory party got it right in its taxation levels at the end of the previous Parliament. If and when there are budget surpluses in the years ahead, will they be used further to cut taxes or to improve public services?

Mr. Darling: There is an awful lot in that intervention to suggest that the hon. Gentleman is feeling a trifle guilty about his party's position. Nevertheless, the previous Government had to increase taxation because of economic failure. They managed to transform an economic miracle of the 1980s into an economic disaster of the 1990s. I repeat that we shall ensure that our priorities are attained, and that we are building the essential stable economic platform to do so.
In his intervention, the hon. Member for Lewes (Mr. Baker) started to rein in the Liberal Democrats' position by saying that that penny will be spent only on education. However, I have to tell him that, if the Liberal Democrats continue voting against other tax-raising measures, the suggestion is unavoidable that that penny will have also to make up shortfalls elsewhere—unless they are advocating cuts elsewhere.
I mentioned the rise in fuel duties not only because other hon. Members have mentioned it in this debate, but because the Liberal Democrats are trying to have it several ways at once. In his "alternative Select Committee report", the hon. Member for Gordon—whom I mention once again—said that the Government had failed sufficiently to tax consumers. However, when we dealt with a proposal increasing the fuel escalator, which is clearly a tax on spending, the Liberal Democrats voted against it.
Like other hon. Members speaking in this debate, I had always believed that the Liberal Democrats were in favour of taxing fuel for environmental reasons. However, I remember also that, during the by-election in Kincardine and Deeside—which is an extremely large rural constituency—it transpired that the Liberal Democrats were not in favour of taxing fuel in that constituency. Had they been so, they might have found it rather difficult to win the by-election.
At every stage, the Liberal Democrats are in favour of the environment and of taxes on consumers—except when they are confronted with the job of seeing the business through. The Liberal Democrats' history shows that, whenever they are confronted with a difficult decision, they simply back off. They also tend to say different things in different parts of the country. Frankly, their 1p to pay for education improvement is risible.

Mr. Baker: I should like the Minister to return to the questions that I asked and he has not answered. First, does he think that current income tax levels are ideal or still too high? Secondly, if there are budget surpluses in the years ahead, will he use those surpluses further to cut indirect taxes or on public spending?

Mr. Darling: I answered the questions. I am not sure whether the hon. Gentleman was in the Chamber on Budget day or has read anything about the Budget since my right hon. Friend made his statement. If the hon.


Gentleman was here or read about the Budget, he will be aware of our priorities, which are to remove the taxation burden and barriers facing people who are entering work. Achieving that objective was the entire point of our reform of the tax and benefit system and of our changes to the national insurance system. Those are our priorities. We want to reduce the starting income tax rate as soon as it is prudent to do so to achieve those priorities.
In reply to the other point made by the hon. Member for Lewes, we have been increasing and will continue to increase resources, for education. We have already increased those resources, and, as I said, we are taking action to raise standards—which are as crucial as funding in education. We have funded higher education on a long-term and sustainable basis—which the Liberal Democrats opposed. Returning to the old grant system would itself add 3p to income tax, and would enable us merely to stand still and provide nothing else for schools or other parts of the education system.
There are now three Liberal Democrat Members in the Chamber. I should like to tell them that, last September, I attended a fringe meeting at the Liberal Democrat conference. I believe that I was the first serving Cabinet Minister to do so. I did it because I welcome discussion, debate and information exchange between political parties, to determine how we might better rebuild our country. However, if we are to have such an exchange, Liberal Democrat Members really will have to take a realistic and serious approach to government.
A political party that is serious in aspiring to government needs serious and well-founded policies, which the Liberal Democrats do not have. At this stage of British political development, the Liberal Democrats have a choice. They can either be a party of perpetual opposition or a credible challenger to the Tories in opposition. However, on today's reckoning, they have yet to face up to that challenge. No political party can be serious about being in government unless it can demonstrate that it can sometimes take hard choices and occasionally reach unpopular decisions, if it believes that that is the right thing to do.
In the year that we have been in office, the Government have implemented a substantial number of our manifesto commitments. We have introduced a Bill—the Education (Schools) Bill—to cut class sizes for all five to seven-year-olds. The first £22 million is already being spent on cutting class sizes. We have also provided an extra £1.3 billion to improve school buildings and equipment. The Opposition could not do that because they were against such extra funding.
The national health service is receiving an extra £2 billion, and the NHS internal market is being scrapped. The United Kingdom now has the lowest corporation tax rate of any major industrialised country. Corporation tax in the United Kingdom is at its lowest ever level, which is good for business, good for jobs and good for creating wealth.
We reformed the national insurance system. This year, pensioners are receiving cash payments of £20 to cope with winter fuel bills, on top of cuts to value added tax on fuel to 5 per cent. We are investing receipts from

council tax sales to start tackling the huge repair backlog that we inherited. We have taken all those actions while sticking to our pledge not to raise income tax rates.

Mr. Adrian Sanders: Will the Minister give way?

Mr. Darling: No, I will not. We have been able to take that action because people both inside and outside the United Kingdom have growing confidence in the Government's ability to ensure that we build the sound economic platform that we need. On keeping inflation under control, our reforms to the Bank of England have resulted in the United Kingdom's lowest long-term interest rates for 33 years.
The Government take an unashamedly long-term view of what is needed in the United Kingdom. We take a long-term view on how to create the wealth we need to get people into work, to help business and to create job opportunities. Above all, we take a long-term view on ensuring that public finances are in a proper state, so that we can ensure delivery on a long-term basis of the public services that we all need and want.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 248, Noes 28.

Division No. 263]
[8.29 pm


AYES


Abbott, Ms Diane
Chaytor, David


Adams, Mrs Irene (Paisley N)
Chisholm, Malcolm


Ainger, Nick
Clark, Dr Lynda


Ainsworth, Robert (Cov'try NE)
(Edinburgh Pentlands)


Alexander, Douglas
Clarke, Charles (Norwich S)


Allen, Graham
Clarke, Eric (Midlothian)


Anderson, Janet (Rossendale)
Clarke, Rt Hon Tom (Coatbridge)


Armstrong, Ms Hilary
Clarke, Tony (Northampton S)


Ashton, Joe
Clelland, David


Atherton, Ms Candy
Clwyd, Ann


Atkins, Charlotte
Coaker, Vernon


Barnes, Harry
Coffey, Ms Ann


Battle, John
Cook, Frank (Stockton N)


Bayley, Hugh
Cooper, Yvette


Beckett, Rt Hon Mrs Margaret
Cousins, Jim


Begg, Miss Anne
Cox, Tom


Bell, Stuart (Middlesbrough)
Cranston, Ross


Benn, Rt Hon Tony
Cryer, Mrs Ann (Keighley)


Bennett, Andrew F
Cummings, John


Bermingham, Gerald
Cunliffe, Lawrence


Betts, Clive
Cunningham, Jim (Cov'try S)


Blizzard, Bob
Dalyell, Tam


Blunkett, Rt Hon David
Darling, Rt Hon Alistair


Borrow, David
Davidson, Ian


Bradley, Keith (Withington)
Davies, Rt Hon Denzil (Llanelli)


Bradley, Peter (The Wrekin)
Davies, Geraint (Croydon C)


Bradshaw, Ben
Dean, Mrs Janet


Brinton, Mrs Helen
Dobbin, Jim


Brown, Russell (Dumfries)
Dowd, Jim


Browne, Desmond
Drown, Ms Julia


Burden, Richard
Eagle, Angela (Wallasey)


Burgon, Colin
Eagle, Maria (L'pool Garston)


Byers, Stephen
Edwards, Huw


Caborn, Richard
Ellman, Mrs Louise


Campbell, Alan (Tynemouth)
Etherington, Bill


Campbell, Mrs Anne (C'bridge)
Field, Rt Hon Frank


Campbell, Ronnie (Blyth V)
Fisher, Mark


Campbell-Savours, Dale
Flynn, Paul


Canavan, Dennis
Foster, Rt Hon Derek


Casale, Roger
Foster, Michael J (Worcester)


Caton, Martin
Fyfe, Maria


Chapman, Ben (Wirral S)
Galloway, George






Gardiner, Barry
Moonie, Dr Lewis


George, Bruce (Walsall S)
Moran, Ms Margaret


Gerrard, Neil
Morgan, Alasdair (Galloway)


Gibson, Dr Ian
Morgan, Rhodri (Cardiff W)


Gilroy, Mrs Linda
Morley, Elliot


Godman, Dr Norman A
Morris, Ms Estelle (B'ham Yardley)


Godsiff, Roger
Mudie, George


Goggins, Paul
Mullin, Chris


Golding, Mrs Llin
Murphy, Denis (Wansbeck)


Griffiths, Jane (Reading E)
O'Brien, Bill (Normanton)


Gunnell, John
O'Brien, Mike (N Warks)


Hall, Mike (Weaver Vale)
Olner, Bill


Hall, Patrick (Bedford)
O'Neill Martin


Hanson, David
Organ, Mrs Diana


Heal, Mrs Sylvia
Osborne, Ms Sandra


Healey, John
Palmer, Dr Nick


Henderson, Doug (Newcastle N)
Pearson, Ian


Hesford, Stephen
Pickthall, Colin


Hinchliffe, David
Pike, Peter L


Home Robertson, John
Plaskitt, James


Hoon, Geoffrey
Pope, Greg


Hopkins, Kelvin
Powell, Sir Raymond


Howarth, George (Knowsley N)
Prentice, Ms Bridget (Lewisham E)


Humble, Mrs Joan
Prentice, Gordon (Pendle)


Hurst, Alan
Primarolo, Dawn


Hutton, John
Prosser, Gwyn


Iddon, Dr Brian
Purchase, Ken


Jackson, Helen (Hillsborough)
Quinn, Lawrie


Jenkins, Brian
Rammell, Bill


Johnson, Alan (Hull W & Hessle)
Rapson, Syd


Johnson, Miss Melanie
Raynsford, Nick


(Welwyn Hatfield)
Reed, Andrew (Loughborough)


Jones, Barry (Alyn & Deeside)
Reid, Dr John (Hamilton N)


Jones, Helen (Warrington N)
Robertson, Rt Hon George


Jones, Ms Jenny
(Hamilton S)


(Wolverh'ton SW)
Robinson, Geoffrey (Cov'try NW)


Jones, Martyn (Clwyd S)
Roche, Mrs Barbara


Kaufman, Rt Hon Gerald
Rogers, Allan


Keeble, Ms Sally
Rooker, Jeff


Kidney, David
Ross, Ernie (Dundee W)


Kilfoyle, Peter
Rowlands, Ted


Kingham, Ms Tess
Roy, Frank


Kumar, Dr Ashok
Ruane, Chris


Lawrence, Ms Jackie
Ruddock, Ms Joan


Lepper, David
Savidge, Malcolm


Leslie, Christopher
Sawford, Phil


Levitt, Tom
Shaw, Jonathan


Lewis, Ivan (Bury S)
Sheerman, Barry


Liddell, Mrs Helen
Sheldon, Rt Hon Robert


Livingstone, Ken
Short, Rt Hon Clare


Lloyd, Tony (Manchester C)
Simpson, Alan (Nottingham S)


Lock, David
Singh, Marsha


Love, Andrew
Skinner, Dennis


McAllion, John
Smith, Rt Hon Andrew (Oxford E)


McAvoy, Thomas
Smith, Miss Geraldine


McCabe, Steve
(Morecambe & Lunesdale)


McCafferty, Ms Chris
Smith, John (Glamorgan)


McDonnell, John
Smith, Llew (Blaenau Gwent)


McFall, John
Spellar, John


McGuire, Mrs Anne
Squire, Ms Rachel


McKenna, Mrs Rosemary
Steinberg, Gerry


Mackinlay, Andrew
Stevenson, George


McNamara, Kevin
Stewart, David (Inverness E)


McNulty, Tony
Stewart, Ian (Eccles)


McWalter, Tony
Stinchcombe, Paul


Mallaber, Judy
Stott, Roger


Mandelson, Peter
Strang, Rt Hon Dr Gavin


Marsden, Gordon (Blackpool S)
Stringer, Graham


Marshall, David (Shettleston)
Stuart, Ms Gisela


Marshall, Jim (Leicester S)
Swinney, John


Marshall-Andrews, Robert
Taylor, Rt Hon Mrs Ann


Maxton, John
(Dewsbury)


Michie, Bill (Shef'ld Heeley)
Taylor, Ms Dari (Stockton S)


Milburn, Alan
Thomas, Gareth (Clwyd W)


Mitchell, Austin
Thomas, Gareth R (Harrow W)


Moffatt, Laura
Timms, Stephen





Tipping, Paddy
Williams, Rt Hon Alan


Touhig, Don
(Swansea W)


Trickett, Jon
Williams, Alan W (E Carmarthen)


Truswell, Paul
Wills, Michael


Turner, Dennis (Wolverh'ton SE)
Winnick, David


Turner, Dr Desmond (Kemptown)
Wise, Audrey


Turner, Dr George (NW Norfolk)
Wood, Mike


Twigg, Derek (Halton)
Wray, James


Watts, David
Tellers for the Ayes:


White, Brian
Jane Kennedy and


Wicks, Malcolm
Mr. David Jamieson.


NOES


Allan, Richard
Kirkwood, Archy


Ballard, Mrs Jackie
Livsey, Richard


Beith, Rt Hon A J
Michie, Mrs Ray (Argyll & Bute)


Bell, Martin (Tatton)
Moore, Michael


Brake, Tom
Russell, Bob (Colchester)


Breed, Colin
Smith, Sir Robert (W Ab'd'ns)


Bruce, Malcolm (Gordon)
Stunell, Andrew


Cable, Dr Vincent
Tonge, Dr Jenny


Chidgey, David
Tyler, Paul


Cotter, Brian
Wallace, James


Davey, Edward (Kingston)
Webb, Steve


Hancock, Mike
Willis, Phil


Harris, Dr Evan



Heath, David (Somerton & Frome)
Tellers for the Noes:


Keetch, Paul
Mr. Adrian Sanders and


Kennedy, Charles (Ross Skye)
Mr. Norman Baker.

Question accordingly agreed to.

Clause 25 ordered to stand part of the Bill.

Clause 27

MARRIED COUPLE'S ALLOWANCE ETC. IN AND AFTER 1999-2000

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: I shall not speak to the clause for too long, in case the number of Liberal Democrat Members participating in the debates and votes, which has decreased progressively over the evening, falls any lower.
The clause makes changes to the married couple's allowance to help to fund the child benefit increase of £2.50 a week from next April that was announced by my right hon. Friend the Chancellor. It reduces the rate of relief for married couple's allowance from 1999–2000, from 15 per cent. to 10 per cent. The same restriction applies to the allowances and reliefs that are linked to the married couple's allowance: the additional personal allowance, widow's bereavement allowance and the relief for maintenance payments.
The clause will increase the allowances for married couple's where one partner is 65 or older, or 75 or older. For 1999–2000, it will apply indexation to them as though their 1998–99 amounts had been increased to £4,965 and £5,025 respectively. That will leave couples who are eligible for the age-related married couple's allowance in at least as good a position, all other things being equal, as before the change in the rate of relief.
The Government's priority is to support families through supporting children, and my right hon. Friend the Chancellor spelled out that objective in his Budget speech. Restricting the value of married couple's allowance and allowances linked to it to 10 per cent. will allow us to target support to families with children, including the


poorest, who do not pay tax, by raising child benefit by –130 a year. That is the right approach, and I commend the clause to the Committee.

Mrs. Caroline Spelman: I feel strongly about the clause, because the Government's one-third reduction in the married couple's tax allowance is a clear betrayal of their pre-election pledge not to increase taxes. It is a hidden tax on married couples. The Library confirms that mortgage payment increases and tax increases under the new Government mean that typical families are –1,000 worse off, and the reduction in the married couple's tax allowance effectively amounts to a contribution of –80 to the general deterioration in their position.
The reduction is not justified economically. The Government inherited a good economic position—public finances were in good shape when they were elected—and it has further improved as a function of the legacy that they inherited. The Chancellor's forecast was that the public sector borrowing requirement for 1997–98 would be £11.9 billion, and it was projected at £6 billion for 1998–99. It has since gone down, and the figures for 1997–98 and 1998–99 are £5 billion and £3.9 billion respectively. The projection is an improving economic position as a result of that legacy, so the Government did not need to introduce this measure.
What I am about to say is fractionally easier for a new Conservative Member, and may pre-empt comments from Labour Members; it is that our Administration once reduced the married couple's allowance. However, the overall trend under the Conservatives was to increase it. It increased in worth from £546—the figure that we inherited from the previous Labour Government—to £700. Only during the period of severe economic recession was there a change of heart in dealing with it.
8.45 pm
I firmly believe—and am free to do so as a new Member—that the Government's proposal is not a desirable way in which to proceed. It is not justified logically in the way that the new Government have presented it. The Minister repeated the position that the Chancellor set out in his spring Budget, saying that the rationale for cutting the married couple's allowance was to fund the increase in child benefit—taking with one hand and giving with the other. However, married couples and those who have children and receive child benefit are not completely interchangeable groups. There is cross-subsidisation affecting couples who do not have children and those who have them but are no longer in receipt of child benefit.
The change hits married couples with one earner, who already bear a disproportionately large share of the tax burden, particularly hard. It also affects married couples aged 40 or 50 whose children have grown up and who do not receive child benefit but whose children are studying at university. Such couples already face the increased burden of tuition fees and the abolition of student grants. It is wrong to think of married couples without children, or with children who have grown up, as rolling in it and having larger disposable incomes. That does not always follow, and the group is being treated unfairly by the

changes; it is a patently unfair tax for them. Nor do I believe that the Government's proposals are the right way to deal with child care. The two issues of taxation of married couples and a proper allowance for child care should be kept separate.
The sums do not add up. The revenue from the reduction in the married couple's allowance falls short of what is required to pay out the additional £2.50 a week in child benefit. More money will have to be found.

Mr. Collins: My hon. Friend is making a powerful speech. Will she reflect on the fact that, before the general election, the Prime Minister signed posters that were displayed up and down the land in which he pledged not to increase income tax? Does she agree that this change is clearly an increase in income tax and therefore a breach of that pledge?

Mrs. Spelman: I am grateful to be reminded of that fact, which brings to mind another statement of the Prime Minister on family policy and taxation that leaves me perplexed because it conflicts with the rationale behind the Chancellor's decision to link the reduction of tax allowances with child benefit. I was present when he made his Budget statement, and I read it carefully. At the outset, he said:
Families are the bedrock of a stable and healthy society".—[Official Report, 17 March 1998; Vol. 308, c. 1106.]
The Minister repeated that the primary aim of reducing married couple's allowance to assist child benefit was to support families by supporting children. I draw her attention to something that the Prime Minister said in a speech in Aylesbury:
For many young women early pregnancy and the absence of a reliable father result in a life of permanent poverty".
My concern about the lack of logic in linking the two things is that it tends to reward having children but to denigrate the significance and importance of having them within the institution of marriage.

Dawn Primarolo: Is the hon. Lady suggesting that couples need the incentive of tax relief to make a commitment to each other in marriage, and that that is their only incentive to make that commitment?

Mrs. Spelman: I am not saying that the tax system is the only means by which the institution of marriage can be supported and reassured—of course it is not. There are other means at the Government's disposal and other institutions within our society to support and encourage marriage. However, there is no question that a cut in the allowance given to married couples acts as a signal to society.
After reading of the slightly differing perspectives of the Chancellor and the Prime Minister, my confusion about the statements on marriage and taxation by senior members of the Labour party is completed by the Lord Chancellor, who said:
Couples who choose marriage in order to give their children a stable upbringing deserve our strong support.
I am left slightly perplexed by those three statements, each taking a slightly different stand.
The reduction in the married couple's tax allowance sends completely the wrong signal at the wrong time, as, over the past 30 years, there has been a steep rise in the


divorce rate. I am sure hon. Members are familiar with the statistics, but I shall state them again to throw the problem into relief: two in five new marriages now end in divorce, and more than one third of births occur outside marriage.
If the Government's motivation is to increase security for children, perhaps we should look at how children are affected by divorce: 70 per cent. of dependent children live with their married natural parents, but that figure is falling; 20 per cent. live with a lone parent, but that figure is rising; 9 per cent. live with a step parent, which is a function of the rising divorce rate. What signal does the tax change send? It will not help to support marriage as the goal or the ideal environment in which children should be raised and which gives children that very security that the Prime Minister says is so important for the stability of our society. I am not saying that the fiscal regime alone will help to reduce the divorce rate, but the signals we give are important.

Mr. Oliver Letwin: Does my hon. Friend agree that, if the logic that the Financial Secretary was half advancing were true, it would also be the case that a £100,000 tax on marriage would make no difference to people's activities? It must the case that there is some incentive effect in addition to the signal effect of which my hon. Friend so rightly speaks.

Mrs. Spelman: I agree. The Government claim that the primary motivation for the change is that it is a means of supporting families through children alone, but that does not fit with academic research on the subject. The national child development study, which was a longitudinal study of 17,000 children born in 1958—by coincidence, my own cohort—shows indisputably that the married two-parent family provides the optimum environment for the nurturing of children. The children of a committed married father do best on the social indices of health, education and employment. Marriage thereby relieves the state of a potential burden, which is the strongest rationale for assisting marriage through the tax system.
I am sure that hon. Members do not want there to be a reduced commitment to marriage, because that would carry significant costs to the state. Before the election, the organisation CARE carried out research into the costs of family breakdown. A significant proportion of the £100 billion spent on social security can be directly attributed to marriage breakdown and the consequences thereof. Support for lone parents costs £10 billion; the cost to the Treasury of relationship breakdown is £4 billion; and, in a more distantly related but nevertheless recognisable feature of marriage breakdown, youth crime costs the Treasury £1 billion. The Government's welfare-to-work initiative appears to be just one narrow perspective from which to tackle welfare dependency. The underpinning of marriage, as the "bedrock of … society"—the Chancellor's words—might be a better way to tackle it.
The logic behind the proposed change is flawed: it sends a confused signal to society; and it leaves the typical family worse off.

Mr. Julian Brazier: In strenuously opposing the measure, I join my hon. Friend the Member for Meriden (Mrs. Spelman) in observing that, in the past

few months, the Government and the Prime Minister have said a great deal about the family and about values. Indeed, as the Government said in their manifesto,
Taxation is not neutral in the way it raises revenue. How and what
is taxed
sends clear signals about the … values
Governments
wish to entrench in society"—
the point that my hon. Friend has just made.
There are two clear reasons why marriage is important to society; my hon. Friend has mentioned both, so I shall be brief. First, marriage is in the interests of the children. The first major study ever published in that subject area is worth quoting, because it came from a socialist sociology professor—not an obviously prejudiced source—Norman Dennis.

Mr. Andrew Love: I do not think that we can allow the hon. Gentleman, as a member of the previous Administration, to make his contribution without commenting on the fact that that Administration not only froze the allowance but reduced it twice. Perhaps he will explain why we now have this about-turn.

Mr. Brazier: I do not defend the cut in the married couple's allowance under the previous Administration. I had, in fact, resigned from that Administration to fight on another issue, and I am delighted that the Conservative party has since changed its policy. Indeed, it did so before the general election, and the manifesto on which I fought was committed to another policy, which I shall say something about later.
The Norman Dennis academic study—in my opinion, one of the best that has ever been carried out on the family—showed that, within individual socio-economic groups, comparing like with like and income with income, children born of and raised by married couples, whether or not they were adopted or the natural children of those couples, did consistently better across every major index. They were less likely to fall into crime. [Interruption.] I see nothing amusing about that. Perhaps the hon. Member for Edmonton (Mr. Love) would like to intervene again. Children born and raised in married couple households were less likely to become involved in drug taking, more likely to perform well at school and more likely to obtain the type of worthwhile employment that hon. Members from all political parties seek for our young people.
It is in the interests of children, therefore, that marriage be encouraged. It is also in the interests of the taxpayer. I shall not repeat the statistics that my hon. Friend the Member for Meriden cited, showing how much the taxpayer loses as a result of family breakdown, but I should like to give a further statistic which, to my mind, encapsulates the whole picture, for children's interests—because, as far as I know, no one denies that stable relationships are better than unstable ones for children—and for the taxpayer, given that most broken relationships end up being supported by the taxpayer.
The Library dug up that statistic for me two or three months ago, from the standard sources of social statistics. A child born 10 years ago to a married couple has an 81 per cent. chance that its parents are still married. If a


child was born 10 years ago to an unmarried couple in an allegedly stable relationship, in 85 per cent. of cases that couple, if they did not later marry—of course, in some cases, they did, which is welcome—have now separated. It is the difference between an 81 per cent. chance of continuing stability with marriage and a 15 per cent. chance in its absence.

Mr. Letwin: Does my hon. Friend agree that that interesting evidence is paralleled in almost every major country of western Europe?

Mr. Brazier: Indeed—and in America, Australia, Canada and New Zealand.
The hon. Member for Edmonton made the fair point that my party cut the married couple's allowance. I did not support that, and I thought at the time that it was a mistake. I maintain, however, that there is no hypocrisy in our voting against this measure, because we fought on a manifesto that included the most imaginative tax proposal to emerge from the Conservative party in the past decade: the transferable tax allowance. It would recognise the work of the non-working spouse—usually but not always the mother—who chooses to stay at home to look after children or a dependent relative. That idea was recently endorsed by our new leader. It would recognise the importance of marriage and the vital role of those who stay at home to care for children or relatives.
I find it extraordinary that the Government should simultaneously introduce measures providing public money to encourage the care of children by everyone except their parents or relatives, and strike out against marriage in this extraordinary fashion.

9 pm

Mr. Howard Flight: There are two aspects to the subject under debate: the general level of taxation on the average family, and the married couple's allowance. As a new Member of Parliament I was self-evidently not involved in the events before the election. I disagreed strongly with the direction in which both parties were heading, which was to make the tax system for marriage at best neutral and at worst a disincentive.
Taxation on the average family has been increasing far faster than the growth in national income. The new Administration have continued that trend; after one year, the average family is paying about £1,000 more in tax.

Mr. Dale Campbell-Savours: Is it not a rather nauseating spectacle to watch Conservative Members queueing up to dissociate themselves from the brutal decisions taken by the former Administration, supported largely by people sitting on the Opposition Benches this evening who never rebelled and who always voted for those monstrous measures?

Mr. Flight: As an enlightened member of the Labour party, you will not, I hope, do the same thing this evening. If you care about these matters I am sure that you will vote against—

The Second Deputy Chairman of Ways and Means: (Mr. Michael Lord): Order. I am not responsible for any of these matters.

Mr. Flight: I apologise, Mr. Lord. I am sure that the hon. Gentleman will heed his own comments. If he

believes in supporting the married family unit, I am sure that he will not want to vote for measures that discourage that unit.

Mr. Campbell-Savours: Let me make my position clear: I support precisely what the Government are doing. We are standing by our election manifesto, and I for one will not dissociate myself from it in five years' time.

Mr. Flight: The Labour election manifesto did not mention increasing taxation, yet you have increased taxation substantially. Your Prime Minister—

The Second Deputy Chairman: Order. Hon. Members, when they get carried away, sometimes fail to use the correct parliamentary language. I would ask the hon. Gentleman to try to do so from here on.

Mr. Flight: I apologise again, Mr. Lord. I care a great deal about these issues, it is true. The Prime Minister of the new Government is pledged to support the family unit, which is why I am surprised that the hon. Member for Workington (Mr. Campbell-Savours) should be so complacent about the increases in taxation being imposed and about this attack on married families.
As we have heard, at the last election we Conservatives saw the error of our ways. The transferable allowance was an important step and a major change. The Conservative party in the new Parliament is unanimously committed to tax measures to support the family.
Some hon. Members may have read an interesting article in The Economist on the impact of the Government's family credit measures. It suggests that a married father will need to earn somewhat more than £400 a week for him to be worth having as a spouse, and he will also need to have fairly frugal habits, or the wife and mother is better off without him as a husband. Does that encourage the married family unit? It reveals the fundamental weakness of the Government's family credit proposals.
The Committee does not need convincing that children grow up better with two parents. That is shown when the crime figures are considered and when the children's educational attainment and subsequent careers are reviewed. It is established across the board that the prospects of children are enormously improved if they grow up with two parents looking after them.

Mr. Love: I thank the hon. Gentleman for giving way. The married couple's tax allowance is paid to unmarried couples. In some circumstances it is paid to a single family member. Will the hon. Gentleman comment on the chaotic way in which family supplement is currently guaranteed? My right hon. Friend the Chancellor stated:

"The only way to make sense of a chaotic system is to make our primary aim that of supporting families through supporting children."

Mr. Flight: There may be anomalies in the present married couple's allowance and there may be ways of tidying it up. All of us want to help children, but the hon. Gentleman misses the point. The crucial question is what signal we are sending to our society. Are we sending a fiscal signal which says that marriage is a good system in which to bring up children, or a fiscal signal which says that we care not at all and want to discourage marriage?
I speak to my friends in India, who say that we are mad as a country to lose the stable base of our society.

Mr. Love: rose—

Mr. Flight: I have given way sufficiently. The hon. Gentleman will no doubt have a chance to make his own speech.
It was argued that the reduction in the married couple's allowance was needed to help finance the increase in child benefit, which it does not finance in its entirety. Furthermore, we have heard that the rules need tidying up. The question of who qualifies for the allowance, especially in cases of divorce, is complex and anomalous. I do not deny that, but it is no excuse for reducing the allowance still further.
We have problems with housing. We are destroying our countryside. The problems are caused not by a massive growth in population, but by a massive growth in the number of single owner-occupiers. We are endeavouring to feed that trend by provision to meet the alleged demand for such housing. As a society, through our housing policy and our tax policy, we send the signal that we are not interested in supporting the married unit in which to bring up children.
There is great hypocrisy in what the Prime Minister says and the example that he looks to set to society as a married Christian gentleman with a happy family, while the Administration, possibly with the best intentions for children from difficult backgrounds, does not provide the fiscal support that the Conservative Government failed to provide for the married family unit. We will destroy ourselves as a people if most of our children, from all walks of life, do not grow up with that security. I pledge myself, and whatever time I may have in politics, to ensuring that we reverse that trend and return to a decent society where children are brought up in families where the parents are married.

Mr. Letwin: Much that my hon. Friends have said is so eloquent and covers so much ground that there is little for me to say about the various aspects of the matter. However, there are some points to add. The first arises from the debate. The Financial Secretary made an intervention and, the more one reflects upon it, the more extraordinary it becomes. The Financial Secretary is a member of a Government who, throughout the Budget debate and other debates, have asserted that tax policy can have a huge effect on behaviour.
I was privileged to listen to a bravura reading by the Financial Secretary of large amounts of text provided by her officials, which explained why long-termism in investment would be encouraged by a taper in place of indexation. She may be right: it may incentivise long-termism in disinvestment—but let us leave that aside for a moment. There is no doubt that the measure will affect behaviour.
We are told repeatedly that the Government have reformed and now understand capitalism and the laws of supply and demand—and, in other words, understand that prices and taxes have an effect on behaviour. If those propositions are true, it must also be true that the taxation of marriage or the lack thereof or positive incentives to marriage will gradually—I do not claim that people will marry in order to secure a particular gain—affect

behaviour over time. If the Financial Secretary seriously challenges that view, she undermines the basis of her Government's actions throughout the Budget and most of their future progress.
My second point has to do with the combination of the Chancellor and the Minister for Welfare Reform. I suppose that, following the intervention by the Deputy Prime Minister in the environmental sphere, we should think of them as a sort of "Brown-Field". That "Brown-Field" is facing a serious problem. The "Field" aspect of the "Brown-Field" believes that there is a huge problem with single-parent families. Over many years, the Minister for Welfare Reform has eloquently written books that some of us absorbed virtually in our childhood, about the need to tackle the problem of the one-parent family. Many of us have come to believe that he is absolutely right.
The right hon. Gentleman has spoken not just about that, but about the urgent need to ensure that the welfare system—which he, the Government and Ministers present in the Chamber believe is so intimately tied to the tax system—does not provide incentives to vice. I think that I have quoted the Minister more or less ipsissima verba. By vice, he meant something very old-fashioned: raising children outside a stable relationship. That is what the "Field" part of the "Brown-Field" wants to achieve.
The "Brown" bit of the "Brown-Field" has put before us a set of quite different measures, which provide an incentive not to begin the business of raising children—the Financial Secretary cannot argue that it is otherwise—according to what my hon. Friends have amply demonstrated is history's best method of keeping parents together for the sake of the children. There is a clear contradiction between two parts of a policy—both of which, ironically, have been announced and brought to the House in the same year. It is perhaps the most extraordinary example of the laws of unintended consequences and attempts at social engineering utterly defeating each other. [Interruption.] I do not defend, any more than do some of my hon. Friends, the actions of the previous Government towards the end of their tenure. [Interruption.]

The Chairman of Ways and Means: (Sir Alan Haselhurst): Order. I am sorry to interrupt the hon. Gentleman. I must inform the hon. Member for Workington (Mr. Campbell-Savours) that I do not want to hear a sedentary chorus.

Mr. Letwin: Thank you, Sir Alan. I was rather enjoying that sedentary chorus, but I am grateful to you for silencing it.
I do not defend the actions of the previous Government—in fact, I think that they were wrong and shameful. They were not ill intentioned—just as the acts of this Government are not ill intentioned—but they had bad effects and were likely, over time, to have bad effects. It was a great symptom of the ability of the previous Government to think about the consequences of their actions and to remedy mistakes that in the closing days of that Administration they brought forward the only policy that so far has been put before the country or the House of Commons that might have reversed the position that we are discussing. The transferable tax allowance could have resulted in the financial advantages of marriage,


which is in part an economic unit, being greater than in 1979. I have not been able to ascertain the exact position, but I think that the advantages would have been greater than at any other time in recent British history.
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That is the measure which those of us who have been speaking against the clause have been using as a basis for our arguments. It is the reason why we would have been in favour of the amendment tabled to it, had it been selected. We believe, I think unanimously on the Opposition Benches, that the transferable allowance is an answer that could have been adopted by the Government, and would have been adopted by them if they were serious about the position of marriage.
I move on to two possible attacks. First, it might be argued that the position that my hon. Friends and I have been advancing is somehow illiberal: that marriage, somehow, may be a life style choice—one among many—and that it is authoritarian, or evidence of an attempt to use the state, to teach people how to lead their moral lives, or an attempt to argue that the tax system should consciously favour rather than disfavour marriage.
If we were saying that marriage itself should be favoured as a way of life, regardless of children, it could be argued that we were adopting an illiberal position. I believe that marriage as between a man and a woman living together may in any event be preferable, but that is a matter entirely for those individuals, involving their conscience, their moral outlook and their religion. It is not a matter for the state.
The reasoning that has been repeatedly advanced by my hon. Friends is not illiberal. We are not advancing an uncaring or authoritarian reason, but one that is based on the interests of children, in trying to give children the best chance of a stable upbringing. I do not think that anyone could argue that that case should be dismissed on the ground of illiberalism.
Nor can it be argued that there is any substitute for this incentive, in producing changes in taxation or welfare that benefit children. It has been argued implicitly already by the Financial Secretary that the clause is to be welcomed because it is to be seen as a natural substitution for what was previously a tax subsidy for the married couple. Now, hey presto, there is a further tax subsidy for children themselves. How kind. How caring. How much a measure to look after our children is it, that we are moving from merely giving a tax advantage to giving increased child benefit, a move that will have a direct effect on children?
The interesting feature of that approach is that it contradicts the logic that the Financial Secretary was advancing, and goes beyond that to suggest that the hon. Lady and her colleagues are engaging in the view of children that Marx described as commodity fetishism. The Minister is arguing effectively that what looks after children best is a little more money for them. That is not a case that the Opposition would accept for a moment. It is our contention—this should appeal to those who believe that in the end, as all good socialists should, money is not the be all and end all—

Mr. Brazier: Does my hon. Friend agree that the Government have endorsed the view that he has outlined,

with statements from the Lord Chancellor about the importance of marriage and of providing Government funding for marriage counselling?

Mr. Letwin: My hon. Friend is right. We are saying that it matters far more to children that there should be a stable relationship between the parents than that there should be a bit more money, whether it be for child care or in child benefit. That is not to say that some more money may not help children, but the brunt of our argument is that it is vastly more important that the money be used over time to engender a structure of society in which children can expect throughout their childhood to have a stable family background than it is to improve their mere economic lot.
If we inspect the proposals as a whole, we see that they are not merely incoherent but will tend to have the opposite result, for the very reasons that some of my hon. Friends have begun to expose. The child care package within the working families tax credit arrangements is remarkable, and it relates in a remarkable way to the clause. It gives couples, whether married or not, an incentive to farm out their children to some other person to look after them.

Mrs. Ann Winterton: I am enjoying the speech of my hon. Friend, who speaks for most Conservative Members. Will he reflect on the position in which I found myself some years ago, when I chose to stay at home to raise my children rather than go out to work? I hoped to give my children a sense of identity and security, which nothing but the presence of their mother could give them, by being there when they came home from school. Will my hon. Friend comment on the fact that people who choose to do that rather than to enhance the family's earning power are treated almost as second-class citizens? Do they not do the most valuable job that can be done—nurturing the next generation and giving them a sense of security and identity, which is vital for their eventual well-being?

Mr. Letwin: I thoroughly agree with my hon. Friend, as I often do. However, the picture is even worse than she paints. Under the "Brown-Field" proposals, she would have had a double choice. She could have engaged in an elaborate fraud and pretended that, in looking after her own children, she was looking after her neighbour's children, and her neighbour could have done likewise. She would thereby have obtained the better part of £100 a week in subsidy from the state. Alternatively, she could have abandoned genuinely looking after her own children and looked after her neighbour's children. All my hon. Friends agree that that would be to the great disadvantage of both sets of children. She would have thereby legitimately benefited from £100 or more a week.
The logic of the package of proposals is clear. It runs roughly like this: first, we ensure that there is the least possible incentive to get married. I suppose that we shall merely continue the ratchet until we have removed the married couple's allowance and perhaps even taxed marriage. That minimises the chance of a stable family background for children. We then ensure that, as far as possible, mothers or fathers do not stay at home to look after the children, but go out either to work or to look after other people's children—or both. Finally, we ensure that, if the mother or father chooses to stay at home, he


or she must either be engaged in an elaborate fraud or must sacrifice the £100, and may not benefit from the transferable tax allowance, which the Conservatives would have offered.

Mr. Brazier: Before my hon. Friend leaves the subject of child care and the problems that it throws up in terms of injustice and scope for fraud, will he say whether he has looked closely at the Swedish model of the 1970s and 1980s? It is perceived that public spending generally in Sweden broke the back of the Swedish economy and eventually led to the kind of cuts with which we have been familiar for the past few years. In reality, a single item of public spending—the cost of child care—caused that to happen, as the economy went into a vicious cycle. It was exactly the cycle that my hon. Friend has described, but with one extra feature, which is just beginning to rear its head here: an increasing demand for nationally—

The Chairman: Order. The hon. Gentleman is beginning to lose sight of the distinction between an intervention and a speech. That still applies in Committee. I call Mr. Letwin.

Mr. Letwin: I feel sad not to have heard the end of my hon. Friend's remarks. Although I admit that I am not in the habit of inspecting Swedish models, I have inspected at length the arrangements in Sweden to which he refers. He is absolutely right: there is no doubt whatever that, if not the sole cause, at least a major cause of the catastrophic implosion of the Swedish welfare state was the child care proposals. If we are to believe the Institute for Fiscal Studies, we shall probably have a similar explosion of expenditure in this country. The IFS estimates that the child care package will require about £4 billion a year of expenditure.
That £4 billion is the final factor in the sequence of logic that I was describing. Even when, contrary to the signals and incentives provided by the state under this so-called enlightened Government, the couple have married and are sticking together, the mother—or sometimes the father—may go out to work and look after someone else's children. We shall have a nation of people who have been brought up outside the married unit by persons other than their parents.

Mr. Gibb: Will my hon. Friend help me to understand the discrepancy between the Government's estimate of the cost of the child care tax credit, at £250 million a year, and the IFS's estimate of £4 billion a year? Can my hon. Friend illuminate the discrepancy?

Mr. Letwin: I think that I can easily illuminate the discrepancy, although I am sure that my hon. Friend knows the explanation. The discrepancy is straightforward. The estimate made by optimists in the Treasury—whether Ministers or officials we shall never know—assumed that there would be a slight take-up of the child care provisions, whereas the IFS, whose view I entirely share, made its estimate on the assumption that, faced with the choices that my hon. Friend the Member for Congleton (Mrs. Winterton) mentioned, most mothers would either go out to work and look after someone else's children, or engage in the legitimate fraud that I described, of swapping children to look after.

Mrs. Louise Ellman: Does the hon. Gentleman agree that his comments distort the

Government's proposals, which extend choice and react to a known need? If the Conservative party is concerned about families and children, why did it take the election of a Labour Government to produce the largest ever increase in child benefit?

The Chairman: Order. Hon. Members are beginning to lose sight of the distinction between the child care proposals and the married couple's allowance. I hope that the hon. Member for West Dorset (Mr. Letwin) will recognise that distinction.

Mr. Letwin: I shall try to follow your admonition, Sir Alan, although I must say that, if the hon. Member for Liverpool, Riverside (Mrs. EIIman) had been present a little earlier, she would have heard Conservative Members contend that incentives to marriage, which creates stable relationships, cannot be replaced by financial advantages related to children. Children benefit more from relationships than from money.

Mr. Love: The hon. Gentleman referred to signals and incentives. I mentioned the inherent confusion in the system between married couples, unmarried couples and single mothers. How are we getting clear signals and incentives?

Mr. Letwin: I am glad that the hon. Gentleman raised that canard, because I had intended to deal with it earlier. The Chancellor brought to our attention a particular phenomenon. Under the married couple's allowance as it is currently administered, if couples divorce in a year, they continue to receive the allowance. Indeed, I do not think that the Inland Revenue would know how to deprive them of it. If the Chancellor believes that that should be used as an excuse for wrecking an entire system of incentives, he is unaware of the dictum that difficult cases make bad law.
By and large, the married couple's allowance is exactly that: an allowance for married couples. Married couples the length and breadth of the country know that perfectly well. The transferable tax allowance, had it been introduced—we hope that it will be in due course—would have had exactly the same effect. People who enter into such relationships are not stupid, and they know, roughly speaking, what is going on. The fact that there are some anomalies we can happily leave to one side.

Mrs. Ann Winterton: I am grateful to my hon. Friend for giving way, because he has been generous in allowing interventions. The hon. Member for Riverside said that the new Labour Government had extended choice.

The Chairman: Order. I am sorry to interrupt the hon. Lady, but I am sure that she above all knows that she should not speak with her back to the Chair.

Mrs. Winterton: You are quite right, Sir Alan, and I apologise humbly. It was extremely rude of me to turn around. During the years when I was a member of the Chairman's Panel, I called many hon. Members to order on that score, but this is the first time that it has happened to me. It just shows how easily we forget, and I apologise again.
Let me return to the subject of the married couple's allowance. Is it not a fact that, had they so wished, the new Labour Government could have extended choice in


whatever way they wanted without affecting the allowance? Is it not also true that the action that they have taken, and the strong signals emanating from the Labour Benches tonight, suggest that the Government do not rate marriage—which is to the detriment of children?

Mr. Letwin: My hon. Friend is entirely right. She also reminds me that I should have answered the point made by the hon. Member for Riverside about choice. I think that what underlay that comment was the idea that this was purely a question of a neutral life style choice. That is a pernicious idea. It applies to adults in relationships, but it does not apply to children. Children do not enter this world by choice, and they do not have a choice about how they are brought up. It is therefore of the greatest importance for adults to be guided into a choice that enables children in later life—because they have grown up in a certain way—to make choices on an informed and mature basis.
At the end of all the logic, there is a proposition that I do not think Labour Members can possibly deny. The sum total of their proposals—the "Brown-Field" proposals—is that people should as far as possible be given at least a minimal incentive to marry, and the maximum incentive not to look after their children. I cannot believe that Labour Members really want that to happen. I find it extraordinary.
If the Government were arguing that that was the way in which they wanted British society to be structured, among other things they would not be where they are in the opinion polls today; but at least the position would be straightforward, and policy would flow. [Interruption.] I think that the effects of such a proposition would be profound and dramatic. Millions of people—including nearly all my constituents, divided as they are on many other matters—would find it a thoroughly repugnant notion. That is why the Government never say that they want anything to be done.
In fact, I do the Government an injustice. I do not believe that Ministers, or any of the "Brown-Field" mafia, want to bring about such an effect; I think that they have simply designed a set of proposals each of which is intended to have some other effect. The reduction in the married couple's allowance in particular is meant to fund variously described benefits—the child benefit increases, or perhaps the child care package. The child care package, in turn, is intended somehow to overcome the problems of single mothers, for instance, who are trying to return to work.
Each of the proposals has its own logic. It is a logic that we can understand and with which, in many ways, we can sympathise, but unfortunately the whole package has been produced without any thought being devoted to the long-term social consequences. That is a catastrophe. The Government probably did not want to engender that catastrophe, and, if they have any sense, they may reverse it—I hope not after 18 or even five years. I hope that they will do that, just as after five years of doing the wrong thing—I freely admit that it was the wrong thing—we reversed what we were doing. We learned, and we should not be ashamed of having learned. Indeed, we should be

proud of it. What the present Government must now do is realise the effect that they are having, and learn the same lessons.

Mr. Gibb: I, too, oppose clause 27, which we should not forget is a tax-raising clause. I am reminded of what happened during the general election campaign. The right hon. Member for Sedgefield (Mr. Blair), now Prime Minister, said on 21 September 1996—[Interruption.] Would the hon. Member for Workington (Mr. Campbell-Savours) like to intervene? If not, I shall continue.
On 21 September 1996, the right hon. Member for Sedgefield said in Birmingham—as reported by the Financial Times:
We have no plans to increase tax at all.
On 8 April 1997, during the general election campaign, the Chancellor told GMTV: 
There's no black hole for the Labour party because we've got no public spending commitments that require extra taxes.
However, within two months of coming to power, Labour introduced 17 tax rises, including the £5 billion a year hit on Britain's pension funds. Labour won the election on a clear pledge that it would not raise taxes but, after two months and a Budget in which the Government raised taxes, the general election pledge was reinterpreted. It was no longer to be regarded as a pledge not to raise taxes, but as one not to raise income tax. The Government were free to raise taxes in other areas.
On 17 March, the Government announced the reduction in the married couple's allowance. That reduction is incorporated in clause 27, and it will raise for the Exchequer £720 million in 1999-2000 and £1.08 billion in 2000-01. On top of that, the MIRAS change and other measures raised income tax bills. As a result of clause 27, the take-home pay of people who claim the married couple's allowance will fall. After the March Budget, the Government reinterpreted again their general election pledge. It became not a pledge not to raise taxes or income tax. Lo and behold, it became a pledge not to raise the basic and higher rates of income tax. Hon. Members may say that there were posters all over Britain making it absolutely clear—

The Chairman: Order. I think that the hon. Gentleman knows that he is going much wider than is permitted in the discussion of the clause. One fleeting reference to its subject matter is not enough.

Mr. Gibb: My point is different from those of my hon. Friends. It is that clause 27 is the Bill's key income-tax-raising measure. It raises more tax than almost any other Budget measure. It will raise £1 billion next year, and it is therefore an income tax rise and completely in breach of a general election pledge. I have raised the issue in debate and in Treasury questions, and the Chief Secretary and the Chancellor have said that, during the general election campaign, they made no such pledge, that the only pledge they made was not to raise income tax rates. In my view, Labour pledged not only not to raise income tax, but not to raise taxes generally.

Mr. Philip Hammond: I am listening carefully to my hon. Friend, and I agree with much of what he says. Does he agree that the linkage


to increases in child benefit is purely bogus? Does he further agree that the Treasury routinely resists hypothecation of taxes but, when it is convenient, the Government put up a smokescreen by the bogus linking of an unpopular tax increase that is contrary to their manifesto commitments to a popular increase in another benefit?

Mr. Gibb: My hon. Friend is right, and I am grateful to him for that explanation.
My party's proposal at the general election of a personal allowance that was transferable between married partners would have achieved far more than the married couple's allowance ever could. It would have done much to remedy the unfairness to the spouse who remains at home to look after children or the house. Such spouses who work at home cannot claim any value from the personal allowance to which they would be entitled if they were working. The transferable tax allowance would enable people to benefit from the personal allowance even if they were not working. One of its key aspects is that it would have helped people off welfare and into work. It would have given people who earn a relatively low salary—£8,000 or £10,000 a year—at least £8,000 of tax-free allowance.
The clause is the Government's key tax-raising measure. It will raise £1 billion in tax, which is equivalent to 0.5p on the rate of income tax. It is a clear breach of the Labour party's general election pledge not to raise income tax. I urge the Committee to reject the clause.

Mr. Michael Fallon: The debate has been refreshing, as it is not often that we properly discuss marriage. It has also been hopeful, as so many new Conservative Members have spoken. They have concentrated not on the details of past tax changes, but on what is likely to work in the future—we have seen a glimpse of the new Conservatism.
I congratulate my hon. Friend the Member for Meriden (Mrs. Spelman), who is a former constituent of mine, on her exceptional speech, which was as eloquent as it was practical. She made the important point that the system sends out signals.
My hon. Friend the Member for Canterbury (Mr. Brazier) has long championed family values. He, too, reminded us of the Conservative party's forward-looking manifesto commitment to transferable allowances, to which I shall return.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) well illustrated the weaknesses of the proposed family credit system, and emphasised his personal commitment, in the new Conservatism, to family values and the importance of marriage.
My hon. Friend the Member for West Dorset (Mr. Letwin) skilfully contrasted the moral and fiscal views of marriage, and made the very important point that children, unlike adults, cannot make life style choices.
My hon. Friend the Member for Congleton (Mrs. Winterton) made an important speech, in which she spoke about her work in giving her children a sense of identity. I am bound to say that the Committee may find the idea hard to take that the children of my hon. Friend and of my hon. Friend the Member for Macclesfield (Mr. Winterton) lack a sense of identity, but her point was well made.
Finally, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) reminded us of Labour's broken promises. Having acquired a tattered copy of Labour's somewhat battered manifesto, I shall return to that point.
The Financial Secretary devoted much of her defence of the clause not to the cut—in fact, she said only that the Government had made changes to the married couple's allowance—but to the fact that the allowance had been indexed for older couples. Last night, she generously accepted the principle behind amendment No. 14—that gaming duty in casinos should be indexed. If indexation is good enough for casinos, it should be good enough for families. I am disappointed that the clause does not provide for indexation for married couples.
Let us be clear about the clause: it cuts the married couple's allowance by a third, from 15 per cent. to 10 per cent. in April next year. It raises tax—£700 million next year and £1 billion in the following year. Most couples will be £80 a year worse off. This is a marriage tax. It is a tax on families, and we oppose it.
Contrary to the proposal that is before us, the purpose of our manifesto pledges was to strengthen the family and to build on the married couple's allowance. We put forward an imaginative proposal, to which several of my hon. Friends have referred, to ensure that personal allowances that, at the moment, cannot be transferred from the non-taxpayer to the tax-paying spouse, should be so transferred. Those non-taxpayers who, like my hon. Friend the Member for Congleton, give up work to look after their children or a dependent relative, lose out twice: on the income that they deny themselves and on the value of the allowance. Therefore, we pledged to modernise the system to allow a married carer or a married parent to transfer allowances to working spouses.
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Some 2 million one-taxpayer couples who had children or dependent relatives would, on average, have gained £17.50 per week—exactly the same couples who will now lose £80 a year. Under our system, there would not have been losers. Of course, double tax-paying couples would not have benefited and, overall, there would have been a cost of some £1.2 billion a year. We wanted to help families and to strengthen marriage.
This debate is apposite. On 27 April 1997, a year ago this week, the Chancellor of the Exchequer told Channel 4:
I want to see tax cuts for the ordinary family".
Ordinary families do not get much recognition in this Bill. Hard-working families who spend on their children, save for their future and do not claim benefit, often feel that they are the forgotten families. They do not get the largesse, the special allowances or the giros, yet it is on those families that our country's social core and we depend to bring up the next generation in stability and with responsibility. Instead, by this clause and by this Budget, without warning, they get hammered.
Labour Members—not one has risen to defend the clause—will recall that there was no mention of this cut in Labour's manifesto. Indeed, it claimed:
We will uphold family life as the most secure means of bringing up our children.
We will keep under continuous review all aspects of the tax and benefits systems to ensure that they are supportive of families and children.


There was nothing in the manifesto about the cut in the married couple's allowance that is being brought forward in this Budget. Indeed, there is nothing in the manifesto about marriage itself; the word "marriage" cannot be found in it. I said "a word". It is true that, on page 26, there is a picture of a bride who is doubly happy—partly because it is obviously her wedding day and partly because she did not, of course, know then that the married couple's allowance was going to be cut just a year into her marriage.
One year on, this Government have betrayed the ordinary family. They have broken their election promise. They are cynically taxing the heart of our country. We say that this is a tax too far. The Bill is bad enough. It is long enough. I advise my hon. Friends to shorten it, to strengthen the family, to underpin marriage and to delete clause 27.

Dawn Primarolo: There is something particularly repugnant about Conservative Members lecturing everyone else on morality. I am reminded of their lectures to us all in their back-to-basics campaign, in which they themselves failed so appallingly to reach the heights of morality that they were prescribing for others. Today's debate should be characterised as "new conservatism, no responsibility". Conservative Members have taken no responsibility for the mess that was created over 18 years by the previous Administration.
Although each Conservative Member speaking in this debate was quick to mention the Government's betrayal, they were also quick to denounce and distance themselves from the previous Government. Many of them must have voted Labour to ensure that that wicked Government were not re-elected, so abysmal was their performance.
I should remind the Committee of the previous Government's legacy, and of the mess—the chaos, as it has been described in this debate—in which they left taxation of married couples. They left a situation in which the state provides married couples with a tax allowance, but in which the state will pay exactly the same amount at exactly the same rate to unmarried couples with children, regardless of whether those couples have ever been married. Moreover, the state pays exactly the same amount at the same rate to single parents as to married couples. Indeed, the state pays the same amount, for up to one year, to couples who separate or divorce, regardless of whether they have children.
Such was the previous Government's confusion in attempting to develop, we are told, a coherent policy on the family that the mind boggles in attempting to contemplate what they were trying to achieve. Conservative Members have shown great audacity in attempting to lecture Labour Members on the matter.
Sir Alan, I do not know whether I should declare an interest, but I am married—although only because of personal commitment to my husband and not because someone provided me with an incentive to do so.

Mr. Oliver Heald: Will the hon. Lady give way?

Dawn Primarolo: The hon. Gentleman did not participate in the debate—such is his motivation to defend the family. I can therefore think of no reason to let him intervene.

Mr. Letwin: rose—

Dawn Primarolo:: If the hon. Gentleman will allow me to finish my point, I shall give way to him, as he participated in the debate.
Such is the confusion in the current system that, if a married couple with children split up, both the man and the woman may receive for up to one year the equivalent of the full married couple's allowance. Therefore, under the previous Government's policy, a separated couple may receive up to twice the allowance received by a married couple.
The fact is that 3 million children are living in poverty. How can Conservative Members lecture us about family security and stability under the previous Government's policies? Perhaps the hon. Member for West Dorset (Mr. Letwin) would like to answer that question.

Mr. Letwin: I was actually planning on asking the Minister whether she is making the argument—which she has half-repeated—that financial incentives have no effect on social behaviour?

Dawn Primarolo: I am arguing, on behalf of the Government, that policy directed to supporting families should concentrate on children—as my right hon. Friend the Chancellor of the Exchequer has stated. The Government—faced with the prospect of confusion in the tax system and with so many children living in poverty and in workless households—are trying to right the situation.
It is ridiculous for Conservative Members to claim that, in government, they were in favour of stability and security for children. They froze child benefit, and it took the election of the present Government to secure the largest rise ever.
Despite the fact that he voted with the Conservative Government when they cut the married couple's allowance, the hon. Member for Canterbury (Mr. Brazier), the president of the Conservative Family Campaign, now tells us that they got it all wrong. He has changed his mind and thinks that there is another way forward. I encourage him to support us in our policies to ensure that children are supported, as the best way of having stable families that can move out of the poverty trap. He should not suggest, as he did earlier, that the Swedish economy has collapsed.

Mr. Brazier: To focus on one among that bundle of points, will the Financial Secretary pick up, at some point in her speech, the idea of transferable tax allowances—first floated by the Conservative Family Campaign eight years ago—on which every Conservative candidate fought in the general election?

Dawn Primarolo: I am sure that the hon. Gentleman can account for what he fought the general election on, but I suppose that the question is why the Conservative policy was different at all previous elections. Perhaps there is a message to him in the fact that not only did his party lose that election but opinion polls show that the Government have gained increased support in the past 12 months. I am sure that many Government Members would be interested in having a recount in their constituencies today.
Conservative Members, having pursued for 18 years a policy that undermined families, and especially families with children, now say that we attack marriage because we are giving more to families with children. How can


that be the case? It is unbelievable that they cannot support the principle that families with children must be our priority.

Mr. Gibb: If the Financial Secretary is so proud of the policies that she is proposing, why have no Government Back Benchers spoken in favour of the clause, or indeed of clause 25?

Dawn Primarolo: Because they do not want to waste the Committee's time by repeating the arguments that I am advancing, and with which I know that they entirely agree. The Opposition asked for this debate, but they were struggling for speakers and asked us to allow the debate to finish earlier. The hon. Gentleman made a ridiculous point in a serious debate, and I am sorry that he felt it necessary to do so.
Conservatives argue that we are attacking families by giving them more money to care for their children. If that is the new Conservatism, the sooner we have another general election that they can contest on that principle, the better.
The hon. Member for Sevenoaks (Mr. Fallon) spoke about stability, security and responsibility: the stability that the Government are giving to families with children; the security that those families are given by the opportunities and choices provided by this Government and denied them by the Conservative Government; and the responsibility that the Government recognise to lift children and families out of poverty.
I encourage the Committee to support the clause, which supports families and children, and to reject the Opposition's proposals.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 275, Noes 123.

Division No. 264]
[9.59 pm


AYES


Abbott, Ms Diane
Bradshaw, Ben


Adams, Mrs Irene (Paisley N)
Brake, Tom


Ainger, Nick
Brinton, Mrs Helen


Ainsworth, Robert (Cov'try NE)
Brown, Rt Hon Nick (Newcastle E)


Alexander, Douglas
Brown, Russell (Dumfries)


Allan, Richard
Browne, Desmond


Anderson, Janet (Rossendale)
Burden, Richard


Armstrong, Ms Hilary
Burgon, Colin


Ashdown, Rt Hon Paddy
Byers, Stephen


Ashton, Joe
Caborn, Richard


Atherton, Ms Candy
Campbell, Alan (Tynemouth)


Atkins, Charlotte
Campbell, Mrs Anne (C'bridge)


Baker, Norman
Campbell, Menzies (NE Fife)


Barnes, Harry
Campbell, Ronnie (Blyth V)


Battle, John
Campbell—Savours, Dale


Bayley, Hugh
Canavan, Dennis


Beckett, Rt Hon Mrs Margaret
Cann, Jamie


Begg, Miss Anne
Caton, Martin


Bell, Stuart (Middlesbrough)
Chapman, Ben (Wirral S)


Benn, Rt Hon Tony
Chaytor, David


Bennett, Andrew F
Chisholm, Malcolm


Benton, Joe
Clark, Dr Lynda


Bermingham, Gerald
(Edinburgh Pentlands)


Betts, Clive
Clarke, Charles (Norwich S)


Blizzard, Bob
Clarke, Eric (Midlothian)


Blunkett, Rt Hon David
Clarke, Rt Hon Tom (Coatbridge)


Boateng, Paul
Clarke, Tony (Northampton S)


Borrow, David
Clelland, David


Bradley, Keith (Withington)
Clwyd, Ann


Bradley, Peter (The Wrekin)
Coaker, Vernon





Coffey, Ms Ann
Kaufman, Rt Hon Gerald


Cook, Frank (Stockton N)
Keeble, Ms Sally


Cooper, Yvette
Keetch, Paul


Cotter, Brian
Kennedy, Charles (Ross Skye)


Cousins, Jim
Kidney, David


Cox, Tom
Kilfoyle, Peter


Cranston, Ross
Kingham, Ms Tess


Cryer, Mrs Ann (Keighley)
Kirkwood, Archy


Cummings, John
Kumar, Dr Ashok


Cunliffe, Lawrence
Lawrence, Ms Jackie


Cunningham, Rt Hon Dr John
Laxton, Bob


(Copeland)
Lepper, David


Cunningham, Jim (Cov'try S)
Leslie, Christopher


Dalyell, Tam
Levitt, Tom


Darling, Rt Hon Alistair
Lewis, Ivan (Bury S)


Davey, Edward (Kingston)
Liddell, Mrs Helen


Davidson, Ian
Livingstone, Ken


Davies, Rt Hon Denzil (Llanelli)
Livsey, Richard


Davies, Geraint (Croydon C)
Lloyd, Tony (Manchester C)


Dawson, Hilton
Lock, David


Dean, Mrs Janet
Love, Andrew


Dobbin, Jim
McAllion, John


Dobson, Rt Hon Frank
McAvoy, Thomas


Dowd, Jim
McCabe, Steve


Drown, Ms Julia
McCafferty, Ms Chris


Edwards, Huw
McDonnell, John


Ellman, Mrs Louise
McFall, John


Etherington, Bill
McGuire, Mrs Anne


Field, Rt Hon Frank
McKenna, Mrs Rosemary


Fisher, Mark
Mackinlay, Andrew


Flynn, Paul
McNamara, Kevin


Foster, Rt Hon Derek
McNulty, Tony


Foster, Michael J (Worcester)
McWalter, Tony


Fyfe, Maria
McWilliam, John


Galloway, George
Mallaber, Judy


George, Bruce (Walsall S)
Mandelson, Peter


Gerrard, Neil
Marsden, Gordon (Blackpool S)


Gibson, Dr Ian
Marshall, David (Shettleston)


Gilroy, Mrs Linda
Marshall, Jim (Leicester S)


Godman, Dr Norman A
Marshall—Andrews, Robert


Godsiff, Roger
Maxton, John


Goggins, Paul
Michie, Bill (Shef'ld Heeley)


Golding, Mrs Llin
Michie, Mrs Ray (Argyll & Bute)


Griffiths, Jane (Reading E)
Milburn, Alan


Gunnell, John
Mitchell, Austin


Hall, Mike (Weaver Vale)
Moffatt, Laura


Hall, Patrick (Bedford)
Moonie, Dr Lewis


Hancock, Mike
Moore, Michael


Hanson, David
Moran, Ms Margaret


Harris, Dr Evan
Morgan, Alasdair (Galloway)


Heath, David (Somerton & Frome)
Morgan, Rhodri (Cardiff W)


Henderson, Doug (Newcastle N)
Morley, Elliot


Henderson, Ivan (Harwich)
Morris, Ms Estelle (B'ham Yardley)


Hepburn, Stephen
Mudie, George


Heppell, John
Mullin, Chris


Hesford, Stephen
Murphy, Denis (Wansbeck)


Hinchliffe, David
Murphy, Jim (Eastwood)


Home Robertson, John
O'Brien, Bill (Normanton)


Hoon, Geoffrey
O'Brien, Mike (N Warks)


Howarth, George (Knowsley N)
Olner, Bill


Humble, Mrs Joan
O'Neill, Martin


Hurst, Alan
Organ, Mrs Diana


Hutton, John
Osborne, Ms Sandra


Iddon, Dr Brian
Palmer, Dr Nick


Jackson, Ms Glenda (Hampstead)
Pearson, Ian


Jackson, Helen (Hillsborough)
Pickthall, Colin


Jenkins, Brian
Pike, Peter L


Johnson, Alan (Hull W & Hessle)
Plaskitt, James


Johnson, Miss Melanie
Pope, Greg


(Welwyn Hatfield)
Powell, Sir Raymond


Jones, Barry (Alyn & Deeside)
Prentice, Ms Bridget (Lewisham E)


Jones, Helen (Warrington N)
Prentice, Gordon (Pendle)


Jones, leuan Wyn (Ynys Môn)
Primarolo, Dawn


Jones, Ms Jenny
Prosser, Gwyn


(Wolverh'ton SW)
Purchase, Ken


Jones, Martyn (Clwyd S)
Quinn, Lawrie






Rammell, Bill
Stinchcombe, Paul


Rapson, Syd
Stott, Roger


Raynsford, Nick
Strang, Rt Hon Dr Gavin


Reed, Andrew (Loughborough)
Stringer, Graham


Reid, Dr John (Hamilton N)
Stuart, Ms Gisela


Rendel, David
Stunell, Andrew


Robertson, Rt Hon George
Sutcliffe, Gerry


(Hamilton S)
Swinney, John


Robinson, Geoffrey (Cov'try NW)
Taylor, Rt Hon Mrs Ann


Roche, Mrs Barbara
(Dewsbury)


Rogers, Allan
Thomas, Gareth R (Harrow W)


Ross, Ernie (Dundee W)
Timms, Stephen


Rowlands, Ted
Tipping, Paddy


Roy, Frank
Tonge, Dr Jenny


Ruane, Chris
Touhig, Don


Russell, Bob (Colchester)
Trickett, Jon


Sanders, Adrian
Truswell, Paul


Savidge, Malcolm
Turner, Dennis (Wolverh'ton SE)


Sawford, Phil
Turner, Dr Desmond (Kemptown)


Shaw, Jonathan
Turner, Dr George (NW Norfolk)


Sheerman, Barry
Twigg, Derek (Halton)


Sheldon, Rt Hon Robert
Tyler, Paul


Simpson, Alan (Nottingham S)
Wallace, James


Singh, Marsha
Watts, David


Skinner, Dennis
Wicks, Malcolm


Smith, Rt Hon Andrew (Oxford E)
Williams, Rt Hon Alan


Smith, Miss Geraldine
(Swansea W)


(Morecambe & Lunesdale)
Williams, Alan W (E Carmarthen)


Smith, John (Glamorgan)
Willis, Phil


Smith, Llew (Blaenau Gwent)
Winnick, David


Smith, Sir Robert (W Ab'd'ns)
wise, Audrey


Spellar, John
wood Mike


Squire, Ms Rachel
Wray, James


Steinberg, Gerry
Wright, Anthony D (Gt Yarmouth)


Stevenson, George
Tellers for the Ayes:


Stewart, David (Inverness E)
Mr. David Jamieson and


Stewart, Ian (Eccles)
Jane Kennedy.


NOES


Ainsworth, Peter (E Surrey)
Duncan, Alan


Amess, David
Duncan Smith, Iain


Ancram, Rt Hon Michael
Emery, Rt Hon Sir Peter


Arbuthnot, James
Evans, Nigel


Atkinson, David (Bour'mth E)
Faber, David


Atkinson, Peter (Hexham)
Fabricant, Michael


Baldry, Tony
Fallon, Michael


Bercow, John
Flight, Howard


Body, Sir Richard
Forth, Rt Hon Eric


Bottomley, Peter (Worthing W)
Fox, Dr Liam


Bottomley, Rt Hon Mrs Virginia
Fraser, Christopher


Brazier, Julian
Gale, Roger


Brooke, Rt Hon Peter
Garnier, Edward


Browning, Mrs Angela
Gibb, Nick


Burns, Simon
Gill, Christopher


Cash, William
Gillan, Mrs Cheryl


Chapman, Sir Sydney
Gorman, Mrs Teresa


(Chipping Barnet)
Greenway, John


Clappison, James
Grieve, Dominic


Clark, Rt Hon Alan (Kensington)
Hague, Rt Hon William


Clifton—Brown, Geoffrey
Hamilton, Rt Hon Sir Archie


Collins, Tim
Hammond, Philip


Colvin, Michael
Hawkins, Nick


Cran, James
Hayes, John


Curry, Rt Hon David
Heald, Oliver


Davies, Quentin (Grantham)
Heathcoat—Amory, Rt Hon David


Davis, Rt Hon David (Haltemprice)
Hogg, Rt Hon Douglas


Day, Stephen
Howarth, Gerald (Aldershot)


Dorrell, Rt Hon Stephen
Hunter, Andrew





Jackson, Robert (Wantage)
Robertson, Laurence (Tewk'b'ry)


Jenkin, Bernard
Roe, Mrs Marion (Broxbourne)


Johnson Smith,
Ruffley, David


Rt Hon Sir Geoffrey
Shepherd, Richard


Key, Robert
Simpson, Keith (Mid—Norfolk)


Kirkbride, Miss Julie
Smyth, Rev Martin (Belfast S)


Laing, Mrs Eleanor
Soames, Nicholas


Lait, Mrs Jacqui
Spelman, Mrs Caroline


Letwin, Oliver
Spicer, Sir Michael


Lidington, David
Spring, Richard


Lilley, Rt Hon Peter
Stanley, Rt Hon Sir, John


Lloyd, Rt Hon Sir Peter (Fareham)
Steen, Anthony


Loughton, Tim
Swayne, Desmond


Luff, Peter
Syms, Robert


Lyell, Rt Hon Sir Nicholas
Tapsell, Sir Peter


MacGregor, Rt Hon John
Taylor, Sir Teddy


MacKay, Andrew
Thompson, William


Maclean, Rt Hon David
Townend, John


McLoughlin, Patrick
Trend, Michael


Madel, Sir David
Tyrie, Andrew


Maples, John
Walter, Robert


Mates, Michael
Wardle, Charles


Maude, Rt Hon Francis
Waterson, Nigel


May, Mrs Theresa
Whitney, Sir Raymond


Moss, Malcolm
Widdecombe, Rt Hon Miss Ann


Nicholls, Patrick
Willetts, David


Norman, Archie
Wilshire, David


Ottaway, Richard
Winterton, Mrs Ann (Congleton)


Page, Richard
Winterton, Nicholas (Macclesfield)


Paice, James
Woodward, Shaun


Paterson, Owen
Yeo, Tim


Pickles, Eric
Young, Rt Hon Sir George


Prior, David
Tellers for the Noes:


Randall, John
Mr. John M. Taylor and


Robathan, Andrew
Mr. John Whittingdale.

Question accordingly agreed to.

Clause 27 ordered to stand part of the Bill.

Bill (Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147) reported, without amendment; to lie upon the Table.

LIAISON COMMITTEE

Ordered,

That Mr. Richard Allan be added to the Liaison Committee.—[Mr. Robert Ainsworth.]

FINANCE AND SERVICES COMMITTEE

Ordered,

That Mr. Richard Allan be added to the Finance and Services Committee.—[Mr. Robert Ainsworth.]

CHAMBER OF COMMERCE (PROTECTION OF TITLE) BILL

Motion made, and Question put,

That the Chamber of Commerce (Protection of Title) Bill, now standing committed to a Committee of the whole House, be committed to a Standing Committee.—[Mr. Robert Ainsworth.]

Hon. Members: Object.

Local Government Finance (Esex)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]

Mr. Bill Rammell: I am grateful for the opportunity to debate the local government finance settlement for Essex county council, and to highlight the way in which I believe the priorities of that settlement are being distorted by the new Conservative administration on that council.
To put the matter in context, the Conservatives took control of Essex county council on 1 April this year, when Southend and Thurrock, which were previously part of the county council area, became unitary authorities. With the change in political balance, the Conservatives took a one-seat majority on the new county council.
The local government financial settlement for the new incoming Conservative administration was reasonably good. I shall not exaggerate, and pretend that the settlement resolved every problem for the county council in every possible way; issues remained to be addressed. Inevitably, the fact that the Government had agreed to stick to the spending limits of the previous Conservative Government for the first two years in office constrained their actions. Nevertheless, generally it was a reasonably good settlement. In all, £835 million was allocated to local education authorities in addition to that which the previous Government had allocated.
In Essex, there was an increase in the standard spending assessment of 4 per cent.—1 per cent. above the national average—and the education standard spending assessment increased by 5.8 per cent., also ahead of the national average. To place it in context, that increase of 5.8 per cent. was higher than any of the previous four-year increases in SSA. That increase in SSA led to an easing of the cap. People outside the House will understand that Essex was able to increase its expenditure by about 5.6 per cent—not an earth-shattering increase, but well above inflation, and allowing some opportunities for improvement.

Mr. Ivan Henderson: Is my hon. Friend aware that Spring Meadows primary school in my constituency has had its nursery provision deferred, after it had been agreed by Essex county council under the phase 4 county programme, after a governor and a teacher had been appointed, and after parents had already registered their children for the school? Is that not another example of the Tories, when they are in control of education, ruining the expectations of teachers, of parents and of children by playing politics with education?

Mr. Rammell: My hon. Friend is absolutely right. The nursery cut he mentions was one of five throughout Essex that was halted as a result of the new administration's decisions.
The overall settlement also brought some good news: the Government decided not to change the area cost adjustment for this year, reflecting—rightly, in my opinion—the fact that, in Essex, costs for the provision of services are higher than in many other parts of the country, because we are in the south-east of England.

I hope that the Government will continue to bear that factor in mind next year, when they reconsider the area cost adjustment.
Overall, it was a reasonably good settlement. Imagine, then, my consternation and that of my constituents when, after 1 April 1998, news of savage cuts began to leak out. It is no exaggeration to say that the cuts that we have seen in Essex, in education and in social services, are probably on a scale that I have not witnessed in one year in any local education authority throughout the country. For hon. Members' benefit, I shall detail some of those cuts.
On education, discretionary grants for dance and drama students have been completely abolished. Funding for the most successful music schools in my constituency—music schools that have given children an opportunity to take part in musical education in a way that previously was not available—has suffered a massive cut of 70 per cent. Adult education grants have been cut by up to 50 per cent. Uniform grants for poorer children have been halved, and support for concessionary fares for pupils over the age of 16 has been slashed, leading to a massive 40 per cent. increase in charges.
If anything, the cuts in social services are worse. Home care charges doubled. Charges for day centre lunches and meals on wheels are increasing by a staggering 92 per cent., targeting the elderly—the most vulnerable people in our communities in Essex.

Sir Teddy Taylor: Southend on Sea, which broke away from Essex and which has Labour and the Liberals in charge, faces exactly the same vicious increases—voted for by Labour and Liberal councillors. Would the hon. Gentleman therefore accept that it is wrong to make this a party political exercise? Southend had a better financial settlement than Essex, but we have had to impose the same savage increases in home care charges. The problem has nothing to do with party: it has to do with local authorities, no matter who is in charge, facing impossible problems these days.

Mr. Rammell: The reason that I believe it is a matter of party politics is that the alternative Labour-Liberal budget proposed for the county council this year did not include the sort of cuts that I am describing. That alternative budget was agreed under the same local government settlement as the one under which the Conservatives in Essex are operating.
I want to explain the human impact entailed by the cuts, and the decision completely to cease discretionary grants for dance and drama students. Under the former Labour-Liberal administration, the county council provided grants of £4,000 a year for the tuition fees of students going to dance and drama colleges. That money levered in funding from the national lottery of a further £4,000 a year. With the complete cessation of discretionary grants, the lottery money, like the grants themselves, has gone.
Thus, whereas dance and drama students throughout Essex were last year eligible for £8,000 from public funds towards their £9,000-a-year tuition fees, this year, under the new administration, they are to receive absolutely nothing.
This will mean that the vast majority of these students will not be able to take up the courses for which they have worked so hard. Talented, dedicated, hard-working young


people who have followed the advice given them by older generations—about how to develop their talents and how to get on in life—are having their life chances stripped from them.
I recently met the new Conservative leader of the county council to put pressure on him, and asked him whether he and his political group were aware when they made their decision of the link between discretionary grants and the matching funding from the lottery. He replied that he was not sure. That speaks volumes about their attitude to the cuts—they did not even realise the implications of their decision.
The imposition of the cuts and the distortion of this year's local government settlement for Essex have been disastrous for my constituents and for those of other Members representing Essex. Since this has happened in spite of a reasonably good settlement overall, it is reasonable to ask why. As usual in politics, we need to look at the detail. Although the total budget has risen by a reasonable amount, as I have said, the fire service, the highways and transport service and other services have had increases well above inflation—

Sir Teddy Taylor: Hear, hear.

Mr. Rammell: Politics is about choices, and choices have consequences. In addition to these considerable increases, the reserves have been increased by £3 million. To pay for all this, there is, of course, a price—savage cuts to education and social services.

Mrs. Teresa Gorman: Is it not true that the education committee is spending an additional £11 million on education, but that that redistribution is being spent on reducing class sizes and implementing other Government priorities, not on extra items for schools? The council is clearly mindful of the cuts in dance grants and in other areas which the Government have forced on them, because it is spending up to cap and because it has increased the precept to keep up standards of education. So what the hon. Gentleman says about education in Essex is complete rubbish.

Mr. Rammell: In response to abuse, I shall give some facts. For each of the previous four years under the previous Labour and Liberal administration, the county council spent above the standard spending assessment on education. In their first year in office, the new Tories at county hall are spending £3.5 million below the SSA. That comparison speaks volumes about the priorities and choices that have been made by the new county council.
The lack of priority being given to education raises serious questions about the right and ability of central Government to direct local education authorities as to their spending. The Government have made it clear many times that our No. 1 political priority is education—a priority that the Conservatives in Essex clearly do not share.
Having been a local councillor for 12 years before I arrived in this place, I understand the arguments about local democracy, local autonomy and local decision making. Given the actions that are taking place in Essex and elsewhere, I believe that there is a debate to be had

about the relationship between central and local government, and a need to address the question whether central Government have a right to insist that their strategic and national priorities are adhered to by local councils.
There is all the difference in the world between central Government dictating cuts to local government, as happened year after year under the previous Conservative Government, and central Government insisting on minimum standards of provision in education and elsewhere that should be respected by local councils. Given the difference in priority given to education by central Government and many Conservative education authorities such as Essex, that is a fundamental issue.
When I speak of a low priority being given to education, I do not expect hon. Members merely to take my word for it. I invite them to reflect on what George Walden, the former Conservative Member of Parliament who retired at the general election, wrote about Conservative attitudes in his recent book on education. He stated that, because most senior Conservatives do not use the state education system, their personal and political motivation is simply not there. We are seeing that repeated with a vengeance throughout Essex.
Many people say that there are no differences left between the political parties. That is often quoted in the media. Those who take that view should look at what is happening in the county of Essex, where an alternative budget was proposed by the Labour and Liberal administration under the same Government grant regime as the Tories are operating under. That proposal did not include such savage cuts.
Pierre Mendes France said that to govern is to choose. In the way in which the new Conservative administration in Essex has distorted this year's local government settlement, it has chosen. Unfortunately, my constituents and the constituents of other Essex Members are paying the price for those choices.

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions: (Mr. Nick Raynsford): I congratulate my hon. Friend the Member for Harlow (Mr. Rammell) on his success in securing the debate, and in using it as an opportunity to highlight the concerns that he and his constituents have about education provision in his area.
The issue relates to the financial settlement for Essex county council and the subsequent decisions of the council on how it chooses to make use of the resources available to it. The settlement has already been approved by Parliament. All councils have now set their budgets, and every council tax payer will know the level of his council tax bill for this financial year.
The debate allows me to reiterate to hon. Members and to council tax payers in Essex what a good settlement we have been able to provide for the county in the face of the tight spending plans that we inherited. [Interruption.] Conservative Members may laugh. When they hear the figures, they will stop laughing, because they will realise that the Government have given an extremely favourable settlement to Essex. The hon. Member for Rochford and Southend, East (Sir T. Taylor) confirmed that the settlement available to Southend was a good settlement.


What the local councillors choose to do with the resources allocated by Government is a very different matter. My hon. Friend has provided some damning evidence about choices affecting education in Essex that have hit particularly hard those people who depend on services. He referred to discretionary awards for dance and drama, and the young people who have developed their skills and talents in the hope of being able to pursue their careers in those fields through further education. Their hopes will be dashed because of the large cut that the county council has made under that budget heading. That is only one of several such examples, and it is clearly distressing.
We are committed to a fair distribution of Government grants to local authorities, and the settlement this year is a start in achieving that goal. It is better in cash terms than many authorities must have expected, based on last year's plans. It is also fairer in its distribution, and it reinforces local accountability by giving local authorities more discretion over local spending decisions. I make no apologies for emphasising the additional help that we have given to local authorities in this settlement. We have provided a 3.8 per cent. increase in provision for local government revenue spending nationally, which is double the previous Government's plans.
The amount made available for local authorities included an additional £835 million nationally for education from the reserve, which has been fully funded by matching grants to authorities. The previous Administration's plans allowed for just a £182 million increase in schools' budgets, which was less than inflation. Our plans provide a 5.7 per cent. increase, which is a substantial increase ahead of inflation, and a real commitment to improving standards.
We have also been able to increase resources for social services nationally next year by some £447 million, which is almost £100 million more than was envisaged by the previous Government. Within that, we have provided an additional £70 million for children's services, which is the first substantial increase for three years; additional funding for adult services, with an extra £21 million on top of the £350 million for the special transitional grant for community care which we will continue in 1998–99; and an additional £73 million for mental health services, which is £6 million more than last year. In addition, we have provided sufficient money for the other priority services of fire and police to enable them to continue their work.

Sir Teddy Taylor: If the situation is so great—and I mean this sincerely—why does the Minister think that, last week, the Labour and Liberal councillors in Southend-on-Sea, which had a better settlement, voted through the most vicious increases in home help charges that I have ever seen? I do not seek to make a political point. Ministers, from whatever party, should realise that local government is facing a nightmare of ever-increasing demands. There is no point trying to score political points and apportion blame.

Mr. Raynsford: I have described the settlement that applies nationally. How it is interpreted locally is a matter for local councils. There is a debate about the correct balance between central and local government, about ensuring that the provision of services meets the standards that the Government expect for citizens in every area of

the country, and about the right of local authorities to provide for the people of their area, and to exercise discretion on behalf of their local electorates. That will lead inevitably to differences in performance and in the decisions taken by different areas.
As the hon. Member for Rochford and Southend, East knows, the debate this evening is focused on Essex county council. I apologise to the hon. Gentleman, but I have not come prepared to answer detailed questions about provision in Southend—he will know that the new arrangements exclude Southend from the county of Essex. However, I shall happily write to the hon. Gentleman about that issue if he would like me to explain it further. I hope that he will understand that I am not able to give a detailed response now.

Mr. David Amess: Will the Minister give way?

Mr. Raynsford: I must ask the hon. Gentleman to calm down, as I am responding to points raised by the hon. Member for Rochford and Southend, East. It is difficult to answer two hon. Members simultaneously. However, I shall give way to the hon. Member for Southend, West (Mr. Amess), as he comes from the same area.

Mr. Amess: Is the Minister not a little surprised that the European Member of Parliament who represents the area we are talking about—Southend and the area represented by the hon. Member for Harlow (Mr. Rammell)—was in Rayleigh high street last week organising petitions against social service charges, but has said nothing about what his Labour colleagues in Southend voted for last week? Does he not find that there is an inconsistency—

Mr. Deputy Speaker: (Sir Alan Haselhurst): Order. I understand the tangential connection between Southend and Essex, but the debate is about Essex, from which Southend is excluded.

Mr. Raynsford: Thank you, Mr. Deputy Speaker. I shall obviously concur with your ruling, and therefore not be drawn into the tempting territory of Southend, however attractive an area it might be, and whatever the peculiarities of its local Conservative representatives at whatever level. I shall focus my comments specifically on Essex.
Hon. Members will be aware that we have made changes to the way in which Government grant is distributed to local authorities. We calculate standard spending assessments for individual authorities following general principles. These are applied to all local authorities, while at the same time taking account of local needs. Essex county council benefited from several of the changes that we made to the SSA formulae for 1998–99, including the introduction of the new needs indices for other social services and the change to the way in which visitors and commuters are taken into account.
I am pleased also to report that the county council also gained as a result of changes we made to the highway SSA, following its representations during consultation on the provisional settlement. I stress that, because the view is often taken that representations by local authorities in the course of settlement have little or no effect on


Government policy. As I know the hon. Member for Rochford and Southend, East is aware, representations by Essex county council over the highways settlement did bear fruit.
The county council took over from the Highways Agency responsibility for the A127 between Southend and outer London in March 1997. The council had actively sought this change, which is referred to as de-trunking, because the road thereby ceases to be a trunk road. However, the SSA system failed to take account of the heavy traffic flows on the road when working out the average traffic flows in the county. We took this element into account in the final settlement, and the council's highway SSA was consequently increased by £3 million. We listened carefully to what the local authority had to say when its representatives came to see us, and we acted as we felt was appropriate.
In total, therefore, the SSA for Essex county council has increased to over £836 million, which is an increase of almost £32 million, or 4 per cent. over the past year's figure. I am used to coming to the House for debates on local government settlements to hear Members complaining that their authorities have not received an adequate settlement. I cannot think of anyone from Essex, hearing the figures to which I have referred, who could complain about the settlement for Essex county council. By any judgment, it is a generous settlement—

Mrs. Gorman: Will the Minister give way?

Mr. Raynsford: I defy the hon. Lady to find any fault with it.

Mrs. Gorman: I am not intervening to argue that Essex did not do a bit better than other authorities. However, the money was allocated specifically for education, on which it was spent, despite the remarks of the hon. Member for Harlow (Mr. Rammell). There was an increase of only 0.5 per cent. for all other services, which meant that there had to be a great deal of juggling with the budget, even to maintain the present standard of support for social services. The Government have put Essex county council in this dilemma.

Mr. Raynsford: The hon. Lady is wrong. The figures I have quoted show that the county council received an increase of almost £32 million, which was 4 per cent. above the previous year's figure. Against a lower rate of inflation, that is not a settlement that makes it difficult for an authority to make sensible decisions. Unfortunately, Essex county council has failed to do so.
I know that education is an important issue in the county. The Government were elected with a clear mandate to make education our No. 1 priority, as my hon. Friend the Member for Harlow has emphasised, and we have done that.
Last July, we announced an extra £1 billion in revenue support grant, specifically to boost education. We also set up the new deal for schools, with £1.3 billion of grant for repairing, renewing and improving school buildings, school security and information technology facilities over the lifetime of this Parliament. I accept that that is not a one-year figure, but a figure for the lifetime of the

Parliament; it is nevertheless significant money. In the Budget in March this year, my right hon. Friend the Chancellor announced a further £250 million for education. In all, we have therefore already pledged extra investment in education of some £2.5 billion since we came to power.
The priority that the Government have given to education nationally has naturally been reflected in the allocation received by Essex county council. Its education SSA for this year is £497 million, an increase of £27 million over 1997–98, after taking account of reorganisation and the abolition of the wasteful nursery voucher scheme.
On 16 April, my right hon. Friend the Secretary of State for Education and Employment announced that Essex will receive grant totalling more than £2.5 million from the new deal for schools this year. Essex county council's allocation from the standards fund will be more than £8 million this year, supporting our national literacy strategy, the national grid for learning and a wide range of other high priorities for improving education in Essex. All in all, Essex is receiving a substantial boost from the Government in the resources available to it for education.
The Government have played their part by making education their top priority. We believe that all the other partners in education, including local education authorities, should do the same. As hon. Members will know, we made it clear to all local education authorities that we expected the priority that the Government have given to education to be reflected in their education budgets. In July, my right hon. Friend the Chancellor of the Exchequer made it clear that the extra money for education should go to education, and my right hon. Friend the Secretary of State for Education and Employment wrote to the leaders of all local education authorities last December to reinforce the point.
I am glad to say that most LEAs seem to have joined the Government in giving priority to education. That is good news for schools, parents and, most of all, schoolchildren. However, I am afraid that Essex does not seem to consider that education should be at the top of its list of priorities. Despite the fact that its education SSA has been increased by £27 million this year, I understand that Essex plans cuts in education spending of £5.9 million. Neither the Government nor the people of Essex can be happy with that decision. It does not reflect the people's priorities of education, education, education, for which the Government received an overwhelming mandate last May.

Mr. Bob Russell: Not in Essex, they did not.

Mr. Raynsford: I can tell the hon. Gentleman, who has just made an intemperate intervention from a sedentary position, that the Government did receive a considerable endorsement from the people of Essex last May. He should be rather more thoughtful about the results of that election, which swept this Government to power with representation in all parts of the country, including his county. If he cannot remember it, I suggest that he goes to Basildon, which used to be represented by the


hon. Member for Southend, West, who thought it was Conservative territory. It is now a further clear example of the Labour party's advances in Essex.

Mr. Russell: Colchester is a Liberal Democrat seat.

Mr. Raynsford: The hon. Gentleman should know better. He clearly has a great deal to learn.
I accept and support the principle that local decisions should be taken locally—

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at seventeen minutes to Eleven o'clock.